Goldman Bet Against Entire European Nations - Who Were Clients - the Same Way It Bet Against Its Subprime Mortgage Clients → Washingtons Blog
Goldman Bet Against Entire European Nations - Who Were Clients - the Same Way It Bet Against Its Subprime Mortgage Clients - Washingtons Blog

Saturday, July 16, 2011

Goldman Bet Against Entire European Nations - Who Were Clients - the Same Way It Bet Against Its Subprime Mortgage Clients

It is well-documented that big banks like Goldman Sachs made money by betting against investments which they themselves bundled and sold to their own clients, such as packages of subprime mortgage-related products such as collateralized debt obligations.

This practice not only was illegal and unethical, but actually worsened the subprime crisis. See this, this, this, this and this.

But did you know that the big banks did the same thing with entire European nations?

As Andrew Gavin Marshall notes:

Greece has a total debt of roughly 330 billion euros (or U.S. $473 billion).[New York Times] So how did this debt get out of control? As it turned out, major U.S. banks, specifically J.P. Morgan Chase and Goldman Sachs, “helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules.” The deficit rules in place would slap major fines on euro member states that exceeded the limit for the budget deficit of 3% of GDP (gross domestic product), and that the total government debt must not exceed 60% of GDP. Greece hid its debt through “creative accounting,” and in some cases, even left out huge military expenditures. While the Greek government pursued its “creative accounting” methods, it got more help from Wall Street starting in 2002, in which “various investment banks offered complex financial products with which governments could push part of their liabilities into the future.” Put simply, with the help of Goldman Sachs and JP Morgan Chase, Greece was able to hide its debt in the future by transferring it into derivatives. A large deal was signed with Goldman Sachs in 2002 involving derivatives, specifically, cross-currency swaps, “in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date.” The banks helped Greece devise a cross-currency swap scheme in which they used fictional exchange rates, allowing Greece to swap currencies and debt for an additional credit of $1 billion. Disguised as a ‘swap,’ this credit did not show up in the government’s debt statistics. As one German derivatives dealer has stated, “The Maastricht rules can be circumvented quite legally through swaps.”[Spiegel]

In the same way that homeowners take out a second mortgage to pay off their credit card debt, Goldman Sachs and JP Morgan Chase and other U.S. banks helped push government debt far into the future through the derivatives market. This was done in Greece, Italy, and likely several other euro-zone countries as well. In several dozen deals in Europe, “banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books.” Because the deals are not listed as loans, they are not listed as debt (liabilities), and so the true debt of Greece and other euro-zone countries was and likely to a large degree remains hidden. Greece effectively mortgaged its airports and highways to the major banks in order to get cash up-front and keep the loans off the books, classifying them as transactions.[New York Times]

Further, while Goldman Sachs was helping Greece hide its debt from the official statistics, it was also hedging its bets through buying insurance on Greek debt as well as using other derivatives trades to protect itself against a potential Greek default on its debt. So while Goldman Sachs engaged in long-term trades with Greek debt (meaning Greece would owe Goldman Sachs a great deal down the line), the firm simultaneously was betting against Greek debt in the short-term, profiting from the Greek debt crisis that it helped create.[Business Insider]


  1. Those Wall Street boys are just clowning with the world's money.

  2. Sounds like another eastern philosophy bleeding into American culture.

    Yin / yang ... evil and good are opposite sides of the same coin.

    "War is peace."

  3. When is the world going to wake up and see, it's Goldman, it's always been Goldman, send these scum banksters to a life of busting rocks and building roads in the Republic of Alaska.

    They can not be reformed, only removed, death is too good for them, they may yet find forgiveness in death, while the good Lord may show mercy on their soul, we should show none on their ares.

    --Andrew Jackson

  4. Hi WP, Do you also have similar info on BoA?

  5. This is hardly news. By the way, hedging alone is not an issue. Serving as underwriter of that debt and not disclosing the deal + hedge, however, would be contentious.

    Allegedly this bank was lead manager of greek debt issuance during the time that the next president of the ECB was head of their European operations. A french MEP serving on the committee for monetary & economic affairs has asserted he made false statements during an audition as part of his confirmation. This is no Wiki-leak : it's fairly obvious from reading the audition transcript and cross checking the information therein (if interested, check our post inside job (6)). Probably not juicy enough for the media to report it...

  6. Get rid of all loop holes and laws that is allowing any of this illegal activity.

    This is not the American way. We are a strong nation and we the people must take it back.

    It might be hard but I suppose we can only vote with money now days and only buy or do business with green companies that are on the up and up. Find out if the comanies you invest in and buy from are corrupt.

    We the people always pay. We can't let them take over the U.S. with corruption but it is the entire world they can play like a game.

    We the people did not do this but we will pay.

    It will be taken out of our future social security, benefits, medicare, medicaid.

    We need to stop corruption in our government and corps, and stock market!

    There is an honest leader just waiting for this opportunity to stop this corruption and WE THE PEOPLE TOGETHER CAN STOP IT.


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