The derivatives were traded on a one to one (26+ / 0-)
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basis as bonds so there's no additional exposure and the amount Greece took is really small.
The real problem is that GS then turned around and sold CDS's (insurance) on the debt they sold to Greece, and those contracts were then sold to banks in Greece and Spain. Those banks are totally exposed.
Now consider, since Goldman knows both Greece's finances internally and also the private banks exposure, these speculative attacks which make Greece's debts that much more expensive, how do they impact these banks with toxic paper? A call for austerity on Greeks makes them how much more likely to pay back these banks? And was anyone betting against these banks? And when these banks fall--with their huge investments all over the continent, how are Austria, the UK, Germany and Switzerland effected.
This is how a hedge fund can game the situation to its benefit. It does a simple bond-for-bond deal, then sells insurance on the deal, sells insurance on the insurance, and does a momentum run in the credit markets to create panic and fear.
Goldman is the outfit that was frontrunning program trades for momentum plays in the stock market. They were running a dozen ponzi schemes on Wall Street every day.
There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.
by upstate NY on Mon Feb 15, 2010 at 05:25:39 AM PST
< Parent >
http://www.dailykos.com/story/2010/2/15/837165/-Johnson:-Eurozone-May-Ban-Goldman,-Humiliate-Fed-(updated)