
How Goldman Sachs Helped Greece to Mask Its True Debt (2010) - Thorondor
http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html
======
Maarten88
I hope that money will never be paid back, just to teach the people who
accommodated this a lesson.

Of course Goldman Sachs themselves cashed in on the deal immediately, and they
probably used their client's money, so for them this has been a "successful
trade". Will they ever stop, will they ever be kept accountable for what they
do? I fear nothing will happen to them, again.

~~~
fredkbloggs
> I hope that money will never be paid back, just to teach the people who
> accommodated this a lesson.

Let's assume the money is never repaid; at this point it seems likely that at
least most of it never will be especially given the enormous haircut private
lenders already took. How does that teach GS a lesson? The article even quotes
a German noting that CCSs are legal (not that following the law has done much
for bankers over the last 10 years). More importantly, what makes you think GS
has any net exposure to Greece at this time? The swap was sold on. There is
very little Greek debt left in private hands and I doubt that GS would be so
foolish as to have any material exposure to it, whether in the form of CCS or
anything else. And the buyer of the swap, supposedly a Greek bank per the
article, is already a total zombie regardless of this particular asset.
Whether Greece defaults on it or not will not be material to its fate.

~~~
ForEnglandJames
>How does that teach GS a lesson?

My earnest hope is that everyone learns not to trust GS at their word, or at
all. And then GS can't find buyers.

Hey, I can dream, right?

~~~
Zuider
People will continue to deal with GS, despite (maybe even because of) their
ever worsening reputation, as long as they can convince themselves that they
are the ones who are going to get rich while the other idiots are going to get
ripped off. The incentive scheme is similar to that of a slot machine.

------
PythonicAlpha
The whole story of Greece is not very nice.

Many sides have had their share in this. The Greek government of this time has
made some severe errors. But I see an even bigger share in the EU (also
German) politicians of that time (before the Euro was installed). It is a
fact, that those politicians sold the Euro to the German population (I guess
to others the same way) with the argument, that no country will ever have to
pay for an other Euro country. They said, that there are so many security
measures installed ...

But the weakest spot in those "security measures" where the politicians
themselves. They _wanted_ Greece to be inside the Euro, so they turned a blind
eye to any warning signs. Of course they also turned a blind eye to every
other country, because according to the "security measures" that where
announced, nearly no country would have got the Euro ... (even Germany
violated the terms)

So, I see the biggest failure in the politicians, that just wanted to have
this adventure -- without really managing the risks ....

It is really an ugly business, and we will see, where all this disaster (the
Euro) leads us to. In now 5 years of so-called crisis-management, they even
did not manage to "rescue" Greece ... (they just prolonged the pain) and other
countries can still become in trouble soon. With a bigger country, the
troubles will be proliferated.

For me, the whole case is a (n other) portent of the incapacity of today's
politicians.

~~~
stretchwithme
If it weren't possible to impose obligations on taxpayers, this adventure
would never have happened.

By the way, using a common currency does not require that the debts of those
using it should be the responsibility of all who are using that currency.
California's debts are California's problem and the problem of those who buy
its bonds. Other states aren't obligated to bail it out.

~~~
sampo
> _California 's debts are California's problem and the problem of those who
> buy its bonds._

French and German banks had bough Greek bonds. France and Germany didn't want
their banks to default, even though the banks had made these bad investments.

~~~
stretchwithme
And they SHOULD let their banks suffer the consequences of bad decisions.

That's the only way a bank will learn to properly weigh benefits versus risks.
If they get bailed out whenever a bad risk blows up, they won't learn to avoid
or charge rates appropriate to the level of risk.

And depositors should also think twice about where they put their money.

If we want banks that don't default, we should have banks that only issue
mortgages for less than 80% of a home's pre-bubble price. Let the buyer or
another lender be on the hook for the risky part of the loan.

And if this bank fails, let its assets be turned over to a corporation owned
by all the depositors, whose shares they can buy and sell. There's no reason
to make the taxpayers pay to recapitalize the bank and keep the unwise bankers
in business.

If there's a demand for that level of risk and the low rates it pays, that
will solve the problem who want that level of security.

But we want to be insulated from risks and have them spread around to other
people when dumb investments blow up. So even wise investors are stuck paying
the costs. And we DO eventually have to face these costs despite all the
borrowing and money creation we do to paper them over.

------
arbitrage314
"This credit disguised as a swap didn't show up in the Greek debt statistics.
Eurostat's reporting rules don't comprehensively record transactions involving
financial derivatives."

Sounds like Eurostat needs to hire some smarter people.

~~~
makomk
They almost certainly knew - it wasn't exactly a secret at the time - they
just didn't care for political reasons. All the political momentum was for
further European integration.

~~~
mjklin
I lived in the UK during 1996-97 and there were plenty of stories in the news
about the "poorer" countries being allowed to join the EU. Greece being the
chief among them.

You're right, they knew but they didn't care.

------
zevkirsh
it's funny how few people on this comment board fail to realize we in the west
are all greece soon.

too much leverage leads to an insolvent society, just as too much debt leads
to an insolvent individual.

the history of the world is largely intertwined with stories of debt------who
is under the control of whom else?

the answer to too much monetary debt is always monetary debasement. as the
money supply is turned to toilet paper, as we have seen in the 20th century
with zimbabwe and other countries------------the answer is that societies
reform themselves.

the result is other types of debt and relationships arise to fill the gap,
while poverty sweeps over the nation.

no financial trickery can solve this problem, at best one can hope to mitigate
it.

firms like goldman sachs seek to exaccerbate it as financialization is rooted
in crisis capitalism, generating and encouraging crisis in order to take
advantage of it.

the entire wall street edifice has transititoned over the years from semi
responsible stewards of financial wealth, to a parasitic casino that is built
upon the practice of crisis capitalism, bribery and price manipualtion.

------
harry8
Where there is unconscionable conduct by a bank, Goldman Sachs are there.
Where there is large scale fraud, Goldmans are there. Where politicians buy
themselves a year of office at the expense of many years of misery for the
people - Goldman's advising.

Why do these guys have a banking license in the EU?

~~~
Ntrails
When Gordon Brown launched the PPP scheme to essentially finance
infrastructure development off the balance sheet, it was not an investment
bank to blame - but a politician looking to fiddle the books to look good.

GS are a symptom, not a cause. They have a license is because they did and do
what the people in power wanted, and until you can come up with a way to
change the people in power and the incentives they have to stay there...

------
sizzzzlerz
Goldman Sachs: the gift that keeps on taking and taking and...

------
mmphosis
[http://www.spiegel.de/international/germany/germany-faces-
bi...](http://www.spiegel.de/international/germany/germany-faces-billions-in-
losses-if-greece-goes-bust-a-1041369.html)

~~~
allendoerfer
As described in the different scenarios Germany would face only very few
billions of liabilities in any given year. In total the numbers are high, but
for the actual yearly budget, these amounts are peanuts. Even small German
city-states are used to waste amounts of this size to build shiny concert
halls [0] or airports that have crazy ventilation systems hidden below the
floors.

[0]
[https://en.wikipedia.org/wiki/Elbe_Philharmonic_Hall](https://en.wikipedia.org/wiki/Elbe_Philharmonic_Hall)

------
fasteo
Lots of comments trashing GS. I generally agree with all of them, but in an
effort to be critical, I end up thinking that GS just executes what their
customers don't have the guts/knowledge to do by themselves. Not that they are
not legally/morally liable, but GS is not the only one to blame. As with
everything in life, nothing is black or white.

------
j_lev
[http://faculty.chicagobooth.edu/anil.kashyap/research/papers...](http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-
on-the-Greek-Crisis_june29.pdf) this recent summary is the best I have seen in
the last couple of days.

------
lucozade
Does anyone know of any reference that covers the actual trade that was done?
This implies a seriously off-market x-cry swap. I would be interested in the
terms esp notional and rate.

This article doesn't really explain much (other than that GS has savvy bankers
which is nice to know)

~~~
lucozade
@ShinyThings. Thank you. Exactly what I was looking for. BTW your account is
coming up as dead. In case you weren't aware.

------
shiven
Honest question: Can someone explain, in plain english, why it would be a bad
idea to just kick Greece out of the EU? What's wrong with some good old
anarchy and lynching a few dozen former politicians who led the Greeks to this
abyss in the first place?

As an outsider, I am shocked by the hullaballoo going on to keep Greece in the
EU. Why not let them reap what they sowed, as a nation?

~~~
Lazare
First, there's the __currency __(the euro), and the political and economic
__union __(the EU). There 's a lot of overlap, but they're not the same.

There's a lot of debate about Greece and the euro, and while the current Greek
government was elected on a platform of staying in the Euro, right now Greece
is rapidly heading towards being ejected from it. But there's no real prospect
(for now, anyhow) of them leaving the EU.

> why it would be a bad idea to just kick Greece out of the EU?

If you mean the EU, well, nobody really wants them to exit the Euro, but
__nobody __wants them to exit the EU. It would also be ridiculously illegal;
there 's literally no process by which a country might be ejected.

If you mean the Euro, well, that's an interesting question. The general
consensus is that Greek exit would hurt the remaining members and Greece
fairly severely; a real case of cutting off your nose to spite your face. Some
have suggested (and I agree) that a Greek exit would be worse for the
remaining Euro-members than it would be for Greece.

> What's wrong with some good old anarchy

We're talking about people lives; pensions, savings, jobs, dreams. I don't
think your flippancy is really appropriate. In any case the victims of a Greek
exit won't be politicians and bankers; it will be ordinary people, in and
outside of Greece.

> lynching a few dozen former politicians who led the Greeks to this abyss

I don't think you understand politics.

> Why not let them reap what they sowed

For EU leaders, this isn't about Greece, it's about the Euro and the greater
project of European integration. They don't want Greece out of the Euro, and
they sure as hell don't want them out of the EU. What they want is to keep
Greece in the EU, without pissing off their voters too much. It looks like, at
the moment, Greece will exit the EU despite what people want.

~~~
shiven
Thanks for the detailed reply! You are quite right about the part where I
don't understand politics. I like revolutions better! Especially, where the
guilty heads roll, figuratively at least.

However, this looks like a terrible mess that will, more likely than not,
result in a humanitarian crisis of mythological scale, visited upon the
poorest and weakest members of Greek society. So why don't EU states let
Greece have that much needed meltdown, but use their money to aid those most
in need during the ensuing crisis? I mean, by your analysis, no one culpable
takes the fall. And who is culpable, if not the politicians in power over the
past decade?

~~~
Lazare
> I like revolutions better! Especially, where the guilty heads roll,
> figuratively at least.

The average Greek in the streets is more likely to blame German politicians
than their own, so no revolution is likely. (And I'm not sure they'd be wrong
either.)

> result in a humanitarian crisis of mythological scale, visited upon the
> poorest and weakest members of Greek society.

Honestly, I'm not sure it'll be much worse than what's already happened. The
"internal devaluation" Greece has been forced to weather has been brutal, to
the point that default and a "real" devaluation offers real hope of
improvement.

> So why don't EU states let Greece have that much needed meltdown, but use
> their money to aid those most in need during the ensuing crisis?

The entire issue is that the rest of the EU (including some parts which are
actually poorer than Greece, and have zero moral obligation to be sympathetic)
really has no interest in spending their money to continue aiding Greece.
Their voters, especially, do not. If they did, Greece wouldn't be heading
towards default and exit of the Euro. But they don't, and as such, I don't
think there's any good solution here.

In retrospect, Greece should never have joined the Euro.

------
hussong
(2010)

~~~
Thorondor
Edited, thanks.

------
anonbanker
all the guys at the top know that if you want to cook the books, you use
Goldman Sachs and PriceWaterhouseCoopers to keep you afloat.

