All I have heard in the blogospere and news media outlets these past few days is how Goldman Sachs executed swaps for Greece that allowed Greece to understate its debt. This understatement allowed Greece to get EU membership.
Firstly, everyone knew what Greece was up to going back in time. I mean everyone! Its beyond disingenuous for the EU leadership to pull the "Babe In The Woods" defense. These guys all know what swaps and currency deals are. They probably executed them on behalf of clients before they were in the EU. Swaps are a huge business in Europe, not knowing that sovereign governments use them to manage/manipulate debt affairs is ludicrous. Anyone who thinks that this type of currency/swap transaction behavior doesn't take place is clueless. Its like walking into a whorehouse in Las Vegas and being surprised to see whores! The next time you walk into Caesars Palace on the strip and don't notice gambling please let me know? Willful disregard is the same as negligence in my book.
Secondly, Greece is not the only country to get involved in Cross Currency Swap Agreements. Italy had done this in 1996. This is what foreign/sovereign governments do. They finagle their finances. How do you think Greece was able to load up on $300B of debt? How do you think Lehman Brothers built up a $500B balance sheet? Leverage and borrowed money.
Thirdly, the idea that Investment Banks are not complicit in these shenanigans is downright criminal.
Let me just say I am a career Wall Street Trader. From 1991 through 2002 I worked at 3 major huge Investment Banks. I traded US Treasuries, Mortgages, CMO's, and finally Interest Rate products. I know how Wall Street Rolls! I have no axe to grind and I am not looking for a job on Wall Street either.
Let me take you back some 12 years to the Russian Debt Crisis. You know the one that precipitated LTCM to blow up? The one that caused global panic?
I lived through this crisis. I traded during this crisis. It wasn't fun.
The New York Times once had the best financial writers. The piece below was something that I read back in 1998. Its an excellent piece of real financial reporting. I have no clue what has happened to them since.
EASY MONEY: For Russia and Its U.S. Bankers, Match Wasn't Made in Heaven
http://www.nytimes.com/1998/10/18/business/easy-money-special-report-for-russia-its-us-bankers-match-wasn-t-made-heaven.html?pagewanted=all
You got to love the Internet and Google search. With the Internet you can't hide the truth.
"And in June, as Russia lurched toward a financial crisis that set off global shock waves, the House of Unions was rented for a glittering celebration of capitalism, with one of the country's most ardent bankers, Goldman, Sachs & Company, as its host. Goldman flew in former President George Bush, paying him more than $100,000, and entertained Russia's former Prime Minister. But between toasts to United States-Russian ties, the talk was about what really mattered to Goldman and many Wall Street brethren: deals."
"So in the days preceding its elegant soiree, Goldman helped the Government raise money by selling $1.25 billion in bonds. A few weeks later, it arranged a complex deal in which short-term debt was exchanged for long-term debt to give Russia financial breathing room."
Sound Familiar?
"To critics, including Russian officials, analysts and some investment bankers who worked in Russia, Wall Street helped hook Russia on easy money, rarely saying no or advising clients to take it slow. They fed the seemingly insatiable appetite for borrowed money."
Where ever there is debt, you can bet Wall Street is not far behind.
"Bankers helped the Russian Government borrow billions from foreign investors before it could reliably collect taxes to pay them back. Bankers flattered the country's oligarchs, an emerging class of elite businessmen, with generous loans that many commercial banks shunned as too risky. They helped regional governments raise money for farms through ''agro bonds,'' even though the system of money-draining Soviet-style collectives never ended."
The Russian Economy didn't have the basic infrastructure to support banking. This didn't matter to Goldman and others. It was just get the deal done and leave.
"For example, Credit Suisse First Boston, the Swiss-American investment bank, pioneered a way for foreign speculators to buy and sell high-interest Russian government debt. The bank was one of the most active traders in Russia, adding to an already overheated market. It was also one of the biggest sellers of Russian debt derivatives to foreign investors, earning big profits in 1996 and 1997 but losing what analysts expect will amount to $500 million to $2 billion this year because of its heavy exposure in Russia after the country defaulted."
Like I said, when Wall Street sees a sucker; they attack! These investment banks are leeches.
"Investors -- including big mutual funds and hedge funds -- also complain that Goldman was so eager to prove its underwriting prowess to the Russian Government that it flooded the international market for Russian bonds in the final weeks before the country defaulted. Moreover, Goldman used a bond deal to pay back one of its own temporary loans. It also used $550 million of its own capital to create momentum for its second big bond deal, but reduced that exposure to Russian bonds shortly after the deal was complete. Those moves raised some concerns among investors, especially because the bonds are now worth much less than they were when they were first sold."
And it will never change....
"I think they are horribly bad at doing due diligence,'' Mr. Hunter said of Goldman and Yukos's other bankers. ''They were moved by greed, frankly. They preferred to hitch their horse to these guys rather than to face the truth."
"Goldman also arranged a $6.4 billion bond swap in July, which allowed investors in Russia's short-term ruble debt to exchange their holdings for longer-term dollar bonds. This offered at least temporary breathing space for the Government."
Any difference to what Goldman has done for Greece?
You want conflict of interest?
"Rival bankers and investors say the bridge loan raises the question of a conflict of interest because Goldman, with nearly 4 percent of its partners' capital tied up in that one loan, was highly motivated to market the June bond deal -- and make sure that it was big enough for Russia to pay Goldman back. Goldman itself at that time was preparing to issue shares to the public, a move that would require the private partnership to open its books to scrutiny for the first time in its 130-year history. A large bridge loan to the Russian Government, unsecured by collateral and made at a time of considerable turmoil in emerging markets worldwide, would have raised a red flag for brokerage firm analysts and credit rating agencies, which view that kind of lending as high risk."
Goldman Sachs has a history of predatory behavior. Its not the first time they have acted in direct disregard for their clients. How in the world do you think an outfit like Goldman Sachs can make the billions it does every year even when the global economies go into the tank? They trade against governments(Greece & Russia), against other companies(AIGFP), and most importantly their own clients. What's next? Goldman making a market in US CDS debt?
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