from Robert Reich, re: Goldman Sachs
If Goldman and its apologists are angry with me for my FB post about its role in hiding part of Greece's debt, they'll be livid when they read this fuller account I just wrote for the Nation magazine -- linking Goldman's role in Greece to Goldman's role in selling bad loans before Wall Street's near meltdown, and to Goldman's role in extorting money from some of the poorest cities in America. Please share.
The investment bank made millions by helping to hide the true extent of the debt, and in the process almost doubled it.
The Greek debt crisis offers another illustration of Wall Streets powers of persuasion and predation, although the Street is missing from most accounts.
The crisis was exacerbated years ago by a deal with Goldman Sachs, engineered by Goldmans current CEO, Lloyd Blankfein. Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it. And just as with the American subprime crisis, and the current plight of many American cities, Wall Streets predatory lending played an important although little-recognized role.
In 2001, Greece was looking for ways to disguise its mounting financial troubles. The Maastricht Treaty required all eurozone member states to show improvement in their public finances, but Greece was heading in the wrong direction. Then Goldman Sachs came to the rescue, arranging a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books cross-currency swapa complicated transaction in which Greeces foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.
As a result, about 2 percent of Greeces debt magically disappeared from its national accounts. Christoforos Sardelis, then head of Greeces Public Debt Management Agency, later described the deal to Bloomberg Business as a very sexy story between two sinners. For its services, Goldman received a whopping 600 million euros ($793 million), according to Spyros Papanicolaou, who took over from Sardelis in 2005. That came to about 12 percent of Goldmans revenue from its giant trading and principal-investments unit in 2001which posted record sales that year. The unit was run by Blankfein.
Then the deal turned sour. After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the countrys debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion. In 2005, the deal was restructured and that 5.1 billion euros in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the European Central Bank and a major player in the current Greek drama, was then managing director of Goldmans international division.
Greece wasnt the only sinner. Until 2008, European Union accounting rules allowed member nations to manage their debt with so-called off-market rates in swaps, pushed by Goldman and other Wall Street banks. In the late 1990s, JPMorgan enabled Italy to hide its debt by swapping currency at a favorable exchange rate, thereby committing Italy to future payments that didnt appear on its national accounts as future liabilities.
But Greece was in the worst shape, and Goldman was the biggest enabler.
http://www.thenation.com/article/goldmans-greek-gambit/
"Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it."
The right wingers who had run up the debt didn't want their gravy train derailed, so they started to use Goldman to move it around among different currencies. Goldman used outdated exchange rates unfavorable to Greece and pocketed the difference. Over time, this fraud and skimming added up to real money, billions.
I've posted this before, too. Reich is one of the few people out there telling the truth about this. The rest know damned full well Greece could claim "odious debt" and get most of it written off because of the frauds perpetrated against them by the right wingers, by their own rich, and by Goldman Sachs. Perhaps they'll do this after everything that hasn't been nailed down has been Shock Doctrined out of the country.
Remember, there isn't just a dumb borrower. There is also a predatory lender in these things.
elleng
(131,290 posts)SharonAnn
(13,781 posts)"A giant vampire squid wrapped around the face of humanity,
relentlessly jamming its blood funnel into anything that smells like money."
In the opening paragraph of Matt Taibbi's article about Goldman Sachs. I'll always love him for writing that sentence.
think
(11,641 posts)Mr Reich does a masterful job of explaining things.
Below is some additional information about the Greek debt crisis and GS's involvement that includes a billionaire Hedge Fund client John Paulson who was also very involved in taking positions against Greece's debt.
The 2nd article is a recent article showing Paulson stands to lose mega millions if Greece can't pay it's debts as he bought the rights to one of Greece's water companies that was privatized. Please note the similarity to the investments of Goldman here in America mentioned in Reich's article.
Kevin Connor - Co-founder, LittleSis.org; Co-founder, Public Accountability Initiative
Posted: 04/17/2010 5:12 am EDT
Goldman Sachs's Greek adventure got an in-depth look from the New York Times yesterday. The article extends on last week's Spiegel piece, which reported that the bank helped Greece hide the true extent of its debt through the use of specialized derivative products. We first reported on the parallels between AIG and Greece in a post last week, following the lead of Zero Hedge. Entry into the paper of record means the story now has legs this side of the pond, and MIT economist Simon Johnson is arguing that Goldman Sachs is set to be blacklisted in Europe.
One question looming over this story: did Goldman position itself to profit from the Greek fiasco? Did it use its special knowledge of Greek's hidden debt to build profitable bets on its future downfall and rescue? If the bank's past behavior is any guide, the answer is yes. Ignoring the impending catastrophe (obvious from their vantage point), and failing to properly "hedge" (extract massive profits), would have been "irresponsible" (insufficiently greedy/corrupt) on the part of senior management.
Considering this, hedge fund king John Paulson's role in Greece deserves far more scrutiny. I wrote about this last week, pointing out that they shared the same vulture flight pattern in Greece, but at the time did not realize that Paulson and Goldman actually partnered in executing massive and profitable bets against the subprime market. Are they doing the same with Greece?
News of Paulson's fund taking large positions against Greek debt has barely risen above rumor in the English-language press, despite this article in a Greek daily, which says that Paulson is "orchestrating the pressure on Greek government bonds and the Euro," and reports that Paulson has a team of 20-30 traders focused on Greece.
~Snip
Since Paulson was in the room with Goldman (and several other banks) when these CDOs were first conceived, it would seem that the fund had an unfair edge over the investors that would lose their shirt buying the securities. Zuckerman notes that Deutsche Bank suffered losses because it couldn't find takers; that famous taker, AIG, may have been Goldman's convenient solution.
These parallels raise obvious questions: was Paulson also in the room with Goldman before it tried to sell Greece on a new way to hide its debt this past November? As a hedge fund client of Goldman's, did Paulson have special information about Greece's true debt situation? Are Goldman and Paulson partnering, once again, to profit from the downfall of an entire country/continent?...
Full article:
http://www.huffingtonpost.com/kevin-connor/what-is-john-paulson-doin_b_463084.html
And here it discusses what Paulson is losing in Greece due to it's inability to pay the water bills:
By Stephen Gandel @stephengandel JUNE 29, 2015, 3:31 PM EDT
~Snip~
There theres Athens Water. Paulson put $137 million into the utility just a year ago, hoping to cash in on the fact that the monopoly was going private. That didnt happen. And now Athens Water is having trouble collecting its bills from the government, which is out of cash. Paulson has already lost about $75 million on the investment, and he could lose much of the rest. Two years ago, Greeces finance minister Yanis Varoufakis wrote a blog post criticizing Paulsons investment in Greek banks.
~Snip~
Source:
http://fortune.com/2015/06/29/john-paulson-greece-puerto-rico-hedge-funds/
think
(11,641 posts)Business News | Fri Apr 16, 2010 9:30pm BST
The U.S. Securities and Exchange Commission is accusing Goldman Sachs Group Inc of committing fraud in a complicated transaction involving securities known as collateralized debt obligations.
The particular deal that Goldman entered into with Paulson and others was called ABACUS 2007-AC1.
Here's how the deal worked, according to the SEC's complaint:
1) Hedge fund manager John Paulson tells Goldman Sachs in late 2006 he wants to bet against risky subprime mortgages using derivatives. The risky mortgage bonds that Paulson wanted to short were essentially subprime home loans that had been repackaged into bonds. The bonds were rated "BBB," meaning that as the home loans defaulted, these bonds would be among the first to feel the pain.
~Snip~
5) Months later, IKB loses almost all of its $150 million investment. In late 2007, ABN is acquired by a consortium of banks including Royal Bank of Scotland. In August 2008, RBS unwinds ABN's position in ABACUS by paying Goldman $840.1 million. Most of that money goes to Paulson, who made about $1 billion total.
Full article:
http://uk.reuters.com/article/2010/04/16/us-goldmansachs-abacus-factbox-idUSTRE63F5CZ20100416
copernicusrev
(44 posts)Goldman is literally killing people.