Like a cat burglar, Goldman Sachs leaves its fingerprints in the most unusual places. The news of Goldman's role in the Greek financial crisis isn't just a black eye for Wall Street. It's also a diplomatic disaster for the United States, whose government has become so intertwined with Goldman that this incident could endanger our relationship with the European Union. Failure to act aggressively could undermine the President's efforts to strengthen our relationships with that part of the world.
The New York Times succinctly summarizes the situation in its article, "Wall Street Helped to Mask Debt Fueling Europe's Crisis," when it writes:
"Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts."
While the underlying financial mechanisms can be complex to follow, the basic situation is this: Nations in the European Union are bound by treaty to keep their indebtedness within certain limits. Goldman Sachs helped structure a deal in which the Greek government was able to conceal its borrowing by labeling the transaction as a "currency trade." So it appears that Goldman may have helped the Greeks evade their treaty obligations with a shady deal.
And this is not unusual behavior for American institutions. JP Morgan Chase did something similar for the government of Italy and, as the Times report suggests, other deals may have been done elsewhere in Europe. These nations have bound their economic fates together in a single union. To undermine one is to potentially undermine all of them.
Here's where it gets tricky for the United States: Goldman Sachs continued its rapacious behavior even after the Federal government bailed them out -- directly (using TARP funds) and indirectly (by paying 100 cents on the dollar for AIG debts that some analysts think were overstated). Like a drug dealer who hates to see a client get clean, Goldman sent executives to Greece in November of 2009 with another tempting offer that would have deepened the government's debt even further.
This time the Greeks said no. They had already used revenue generators such as lottery income and airport usage fees as collateral on previous loans. (Lottery fees make a dark kind of sense in this case; if there's one thing Goldman executives understand, it's gambling.)
What does it look like for an institution that has been rescued by the US Government to encourage over-leveraged governments to go even more deeply into debt? Goldman executives have been embedded in the government for years and enjoy close relationships with the President's two senior financial officials, Tim Geithner and Larry Summers. (Summers received $135,000 from Goldman for a one-day visit in April of 2008 when, as Glenn Greenwald observed, it was assumed he would be a senior financial official in the next Administration.)
As Simon Johnson points out, the Federal Reserve may give Goldman the usual soft treatment for its behavior in the European Union. But Johnson points out that the European Commission, which has jurisdiction over this issue, isn't likely to be so forgiving. He expects an audit, and offers some suggested lines of inquiry.
This could prove to be a major embarrassment for the US, and an impediment to winning support the US will need from Europe on a range of diplomatic initiatives.
We're told that one of the Greek banking deals was named after Aeolos, the Greek god of the winds. Other gods are available for future Goldman deals: There's always Hermes, who's known for representing flight and speed but is also responsible for commerce. Even more aptly, he's the god of mischief and theft. Or there's the more minor figure of Adephagia, the goddess of gluttony.
And if our government doesn't take a firmer hand with rogue bankers like Goldman they may find themselves in the hands of Ate. Haven't heard of her? She's the goddess of foolish actions.
Richard (RJ) Eskow, a consultant and writer, is a Senior Fellow with the Campaign for America's Future. He blogs at:
No Middle Class Health Tax
A Night Light
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
Something like this:
You have the right not to borrow or otherwise do business with us. However, if you do, everything we learn about your financial condition can and will be used against you, by us or our affiliates, to maximize our profit. Oh . . . and the financial products we sell you . . . may be dangerous to your financial health (and everyone else's!)
In the unfolding saga of Greece's sovereign debt mess, consider -- once again -- who seems to be at the dirty little epicenter:
Goldman Sachs and J.P. Morgan . . .sold financial instruments to Greece that were designed to artificially depress its borrowing and budget deficits.
Now Greece is under attack in the markets, and the major countries in the euro zone are trying to force it to clean up its act and to keep it from defaulting. Traders who bet against Greece . . .have made a lot of money as the market realized just how much trouble Greece was in.
The European Union should seek to find out if the banks that helped Greece lie — and thus knew its numbers were false — made money betting against it.
--Floyd Norris, "Helping Governments Deceive"; NYT (2/16/2010)
One more time, louder and all
This is called "neoliberalism" or the "Washington Consensus." Now the bankers and other "investors" are looting the US itself through flat taxes and subsidies to the rich while sticking it to middle class workers who pay most of the taxes.
We will soon pay a toll to drive on the road or use the internet.
Yesterday (Feb 15. 2010) at 12:25, I posted this comment in response to the article, 'Greece Crisis: Wall Street Helped to Mask Debt Fueling Europe's Shake-Up'
"Someone should have warned the Greeks to beware of Goldman Sachs bearing money."
and Goldman profited by taking away huge compensation for their efforts. When will countries learn that we have a criminal empire here in the USA!
As economic advisor Ruth Lea writes in the London Times, "The Greeks have acted irresponsibly and must pay the penalty."
And as Otmar Issing, president of the Centre for Financial Studies, observes in the Financial Times, "Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an 'external shock' such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before."
If our leaders don't learn from the Greek debacle that you can't borrow and spend your way to solvency, much less prosperity, then they're going to continue to push the same kinds of policies that have bankrupted Greece and that are in the process of bankrupting several other European nations, not to mention states like California.
http://americaspeaksink.com/2009/04/navy-seals-target-wall-street-pirates/
Our traitorious Congress committed the biggest heist in world history with TARP.
Without promisies of taxpayer backstopping all risks, there would be no "too big to fail" anything.
Anytime an entity has to assume their own risks, they are conservative on risk.
Imagine our surprise (as Ontarians) when we read that our premier McGuinty has asked Goldman Sachs to come in and "look at our assets". Omfg. Seriously. We are in a huge deficit...our fearless leader has already wasted BILLIONS in an E-Health debacle...now he wants to sell off publicly owned services to make money. We have had experience with that in the past and it didn't work out so well.
So stay-tuned. It should be interesting. Any bets on whether Goldman Sachs will save the province of Ontario?
I am not exactly clear who was involved. Still.
http://www.cbc.ca/canada/toronto/story/2009/10/07/ehealth-auditor.html
These countries knew they were engagin in risky bets ... and the EU knew as well.
Everyone remained quiet until it blew up in their faces.
http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-greece
We bail out Goldman Sachs and they go to Greece implying they represent our government to try to run the same scam they used on us? You would think that this time President Obama would see they are using him in an effort to destabilize the rest of the world. Haven't they done enough damage to the world economy already? Put the brakes on these criminals NOW! They are economic terrorists!