Banks Bet Greece Defaults on Debt They Helped Hide

[UpInArms]

Source: New York Times

Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.

Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.

These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.

As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.

Read more: http://www.nytimes.com/2010/02/25/business/global/25swaps.html?partner=rss&emc=rss

[mike_c]

1. greedy fucking rat bastards have NO SHAME, no limits to the depths they will stoop to...

...for profit. This is capitalism, at its very fucking best.

[dkf]

2. Credit default swaps need to be regulated like they are insurance products.

Why they haven't done anything about this yet is beyond me.

[JackRiddler]

3. I don't believe it's beyond you.

;)

Any number of institutions who don't hold Greek bonds get to bet they'll fail.

As with AIG, these bets might be oversubscribed, and maybe so many place these bets that if Greece defaults, they can't be paid off.

No problem, some government will be bullied into covering if the casino goes bust. For the most famous example, see the pipleline that carried more 13 billion from the Treasury to AIG to Goldman Sachs. (And just as much to Societe Generale, which is rumored to have used a big part of it to pay off... Gold Sacks!)

Despite a 2.2 trillion dollar surplus, Social Security can't be covered, I hear. Credit default swaps MUST be. Fascinating.

[dkf]

5. Are we Making Germany pay it off this time?

The Europeans owe us for bailing out someone... was it society generale?

[JackRiddler]

6. Actually rumor has it Societe Generale funneled a big part of that back to GS...

And if you think about it, which "Europeans" would that be who owe what to whom? There are people just like us there who would have been very happy not to see the infamous Bank of the Congo Genocide live another year.

[dkf]

7. Why would they do that?

Or was that a way to disguise the final beneficiary or to make it look like we needed to clean up after us cos?

[JackRiddler]

8. Presumably because they owed it to them for bets they lost.

[dipsydoodle]

10. Broadly speaking the world owes you,

along with the unemployed and homeless in the USA, for creatihg this fucking mess in the first place.

[change_notfinetuning]

9. Exactly. We can't pay ourselves back the money we borrowed from Social

Security, but we can cover, in full, the losses of the gamblers on Wall Street. That's not just fascinating. That's Fucking Amazing.

IMO, President Obama is weak on history and I wonder if economics is not his strong suit, as well. I'd love to sit down and discuss this with him, just to see if he actually understands what is happening and is in control, or whether he is just accepting bad advice from his "brain trust" because it's over his head. Either way is bad, but if he doesn't get it, he can still be shown how his decisions are sabotaging the picture of the United States of the future that he paints in his flowery speeches. If he gets it, though, which I suspect, and he has personally chosen this economic policy after carefully considering all of the factors, the options, and the consequences, then things are pretty hopeless. Fasten your seat belts and prepare for business as usual - on steroids.

[Psephos]

4. Banksters were snakes, but Greece was also playing fast and loose here

Read this for a better grasp of cross currency swaps, and the incentives driving the banksters and the Greeks, than that provided by the NYT reporters.

http://www.nakedcapitalism.com/2010/02/a-bankers-perspective-of-the-greece-derivatives-debt-dodge.html

[KamaAina]

11. Today's Worst. Persons. In The World!

:grr: :banghead: :argh: