How Goldman Sachs Profited From the Greek Debt Crisis

[rhett o rick]

Last edited Wed Jul 29, 2015, 10:29 AM - Edit history (1)

How Goldman Sachs Profited From the Greek Debt Crisis
The investment bank made millions by helping to hide the true extent of the debt, and in the process almost doubled it.
By Robert B. Reich July 16, 2015 The Nation Magazine

The Greek debt crisis offers another illustration of Wall Street’s 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 Goldman’s 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 Street’s predatory lending played an important although little-recognized role.

Executives at Goldman and other Wall Street banks have enjoyed huge pay packages and promotions. Blankfein, now Goldman’s CEO, raked in $24 million last year alone.

Don't think this is only happening across the oceans.

Three years ago, the Detroit Water Department had to pay Goldman and other banks penalties totaling $547 million to terminate costly interest-rate swaps. Forty percent of Detroit’s water bills still go to paying off the penalty. Residents of Detroit whose water has been shut off because they can’t pay have no idea that Goldman and other big banks are responsible. Likewise, the Chicago school system—whose budget is already cut to the bone—must pay over $200 million in termination penalties on a Wall Street deal that had Chicago schools paying $36 million a year in interest-rate swaps.

Goldman-Sachs is out to make money at any cost. They will destroy America just the same as Greece. We need to have strong regulations to keep Wall Street from destroying America. Please consider this in the primary and coming elections.

Read the complete article at: http://www.thenation.com/article/goldmans-greek-gambit/

Please support progressive publications like The Nation

[Javaman]

1. Link? nt

[WillyT]

15. Here Ya Go:

Link: http://www.thenation.com/article/goldmans-greek-gambit/

[rhett o rick]

21. Thanks. I will put it in the OP. nm

[WinkyDink]

2. "The crisis was exacerbated years ago by a deal with Goldman Sachs...." But there are NO CONSPIRA-

CIES!!

[Octafish]

19. It's VITAL to remember that for one really, really, really, really, really, really big reason.

"One of the things that is interesting about reading conspiracy theory is that much of what folks think is conspiracy is really many people acting in concert to make or protect their money." - Catherine Austin Fitts

A big shot in Poppy's crew, Fitts got fed up with the corruption at the highest levels of government, business and finance. She's doing all she can to document corruption on Wall Street and Washington and helping those who give a damn do something about it. Her Narcodollars for Beginners deserves a Pulitzer.

If people start asking, "Where's mine?" they might soon realize the system itself is the problem. We wouldn't want that, would we?

and other assorted asshats & emoticons.

[snot]

3. Goldman played an important role in the 2008 crisis as well.

Our bailout of AIG enabled it to make good on credit derivatives bought from it by Goldman and many other big banks that were that the mortgage market would crash – i.e., U.S. taxpayers helped AIG pay off on Goldman's shady speculations.

[hill2016]

5. isn't that

more AIG's fault than Goldman's fault?

[snot]

9. Goldman had created and sold many of the mortgage-backed securities

that they knew were no good and that they themselves were betting against.

Hank Paulson left the top job at Goldman Sachs in 2006 to become Treasury Secretary. First he let Lehman Brothers fail; then he pushed through the bailout bill (see http://content.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877341,00.html ).

The real culprits are, of course, us, for allowing financial regulation to become a fiasco (repeal of Glass-Steagall, failure to regulate credit derivatives, defunding of financial regulators, etc.).

AIG is just a tool. They had no idea what they were doing or didn't care. Goldman et al. knew exactly what they were doing.

To our failures, add, failure to hold financial executives personally accountable for their frauds and criminal negligences.

[hill2016]

11. whoa here

AIG was the largest insurance company. Are you saying they don't know how to underwrite insurance properly?

There's nothing remotely wrong with creating mortgage backed securities. Goldman's role as an investment bank is to facilitate transactions. Who were the ones who actually made the loans and made the reps and warranties? The originators. There's a case that they are the ones who really defrauded investors, but they've paid for it by going bankrupt.

If the housing market had continued to climb, these securities would have turned out fine and Goldman would have lost their bet. Would you have cried for them?

[snot]

14. Yes.

They claimed they didn't understand what they were doing – that was their defense.

It wasn't really that hard to understand. Either way, they were incompetent or negligent.

As for Goldman, it knew the MBS's it was selling were toxic; see http://www.businessinsider.com/r-goldman-mortgage-deal-with-federal-agency-could-reach-125-billion-source-2014-26 .

[hill2016]

18. I read the complaint

http://www.fhfa.gov/SupervisionRegulation/LegalDocuments/Documents/Litigation/FHFA_v_Goldman_Sachs_Complaint.pdf

It doesn't claim that Goldman knew the MBS were toxic. It claims that Goldman failed to do the proper underwriting required.

So maybe Goldman was negligent as well (incompetent they are not).

[snot]

33. I have some experience in this area and find it impossible to believe they didn't know. Besides,

why would they spend good money betting they were toxic, if they didn't feel there was reason to believe it?

The fact that the complaint doesn't allege knowledge simply means that the feds aren't going to try to prove knowledge, which is usually quite difficult to prove, especially when the defendents are as smart as these guys.

[Octafish]

20. IT'S GEITHNER'S FAULT. He made sure AIG was made WHOLE 100 CENTS ON THE DOLLAR.

Timothy Geithner and AIG-Gate

The World’s Greatest Insurance Heist

by ELLEN BROWN
FEBRUARY 08, 2010
CounterPunch

EXCERPT...

Geithner has been under the House microscope for the decision of the New York Fed, made while he headed it, to buy out about $30 billion in credit default swaps (over-the-counter derivative insurance contracts) that AIG sold on toxic debt securities. The chief recipients of this payout were Goldman Sachs, Merrill Lynch, Societe Generale and Deutsche Bank. Goldman got $13 billion, roughly equivalent to its bonus pool for the first 9 months of 2009. Critics are calling the New York Fed’s decision a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been put through bankruptcy proceedings in the ordinary way. In a Bloomberg article provocatively titled “Secret Banking Cabal Emerges from AIG Shadows,” David Reilly writes:

(T)he New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve. This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.

The beneficiaries of the New York Fed’s largesse got paid in full although they had agreed to take much less. In a November 2009 article titled “It’s Time to Fire Tim Geithner,” Dylan Ratigan wrote:

(L)ast November . . . New York Federal Reserve Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret no less, to pay off the counter parties to the world’s largest (and still un-investigated) insurance fraud — AIG. This full payoff with taxpayer dollars was carried out by Geithner after AIG’s bank customers, such as Goldman Sachs, Deutsche Bank and Societe Generale, had already previously agreed to taking as little as 40 cents on the dollar. Even after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, he still had the audacity to claim the “sanctity of contracts” in the dealings with these companies like AIG.

Geithner testified that the Fed’s hands were tied and that the bank could not “selectively default on contractual obligations without courting collapse.” But if it was all on the up and up, why all the secrecy? The contention that the Fed had no choice is also belied by a recent holding in the Lehman Brothers bankruptcy, in which New York Bankruptcy Judge James Peck set aside the same type of investment contracts that Secretaries Paulson and Geithner repeatedly swore under oath had to be paid in full in the case of AIG. The judge declared that clauses in those contracts subordinating other claims to the holders’ claims were null and void in bankruptcy.
“And notice,” comments bank analyst Chris Whalen, “that the world has not ended when the holders of contracts are treated like everyone else.” He calls the AIG bailout “a hideous political contrivance that ranks with the great acts of political corruption and thievery in the history of the United States.”

CONTINUED...

http://www.counterpunch.org/2010/02/08/the-world-s-greatest-insurance-heist/

[hill2016]

22. here I totally agree

they should have let AIG go bankrupt and bring down all the investment banks.

[A HERETIC I AM]

37. You clearly have no idea how devastating that would have been to the entire world.

You aren't alone on this board, however. Over the years since 2008 there have been many members of this board who called for something similar.

It is astounding to me how a complete lack of circumspection can exist, because if what you suggest had actually come to pass, it would have meant untold misery for BILLIONS of your fellow humans.

[hay rick]

34. More on this.

When I read Neal Barofsky's "Bailout" I was astonished by the preferential treatment received by the AIG counterparties. I posted a 3-part summary of the chapter on that sordid affair- first part here: http://www.democraticunderground.com/111632333

[marmar]

4. Goldman Sachs is the posterchild for this end stage of capitalism that we're in....

..... provide nothing of any real value, deceive, exploit and steal before it all goes down.

[rhett o rick]

26. On the money. Tell me if I am wrong here. Wealth can be created when

one makes a product and sells it. Also, the illusion of wealth can be "created" by pyramid schemes. But today is seems that people like Goldman-Sacs have decided it is so much easier to steal wealth. Wealth that isn't created is zero-sum. While the CEO and exec's at Goldman-Sachs are making millions, it's coming from somewhere, like from the poor people in Greece or Detroit.

This coming election we have a very important choice. To continue with the thieves of Wall Street or try to regulate them.

[laundry_queen]

35. +1 nt

[Phil1934]

6. Link to G-S deal

http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html

[hill2016]

7. a swap

is a very common business transaction to hedge your risk to rising interest rates, currencies and even commodity prices.

Both sides think they will make money from the swap else they wouldn't do the swap.

[snot]

10. It's not a fair deal when one side hides material info about what they're betting on.

Moreover, the swap is mere speculation, a bet that serves no substantive economic purpose, when neither side has any "insurable interest" in what they're betting on.

See http://c-cyte.blogspot.com/2009/05/credit-derivatives-for-dummies.html
and
http://c-cyte.blogspot.com/2009/05/more-derivatives-for-dummies.html .

[hill2016]

12. are you talking

about Greece here or the housing market?

[snot]

13. Sorry; I'm just concerned based on past history,

and because Greece's situation reeks of "disaster capitalism."

I'd love to know whose holding what kinds of credit derivatives w.r.t. Greece.

[Lucky Luciano]

17. Interest rate swaps are not CDS contracts that you appear to be referring to.

An IRS is a swap of fixed rate payments with floating rate payments referenced (usually) by libor. An IRS can convert a floating rate loan to a fixed rate loan and vice versa. There is an application outside of speculating on rates.

[rhett o rick]

28. So maybe a bad analogy is that you have two players at the card table, gambling.

One play wins big (either fair or not) and take all the money. Too bad right? Not when the loser comes to the taxpayers wanting a bailout.

As someone else said here, we are in the end game of capitalism. People are literally dying from poverty because the top 0.01% is sucking up all the wealth and resources. Goldman-Sachs is a big player.

[grahamhgreen]

32. Yet somehow Goldman always wins.

[JackInGreen]

8. Because....of course they did

Can we finally agree to kill these conceptual incorperated kaiju?

[WillyT]

16. HUGE K & R !!! - THANK YOU !!!

[marym625]

23. Thank you Rhett!

Just an FYI, Greg Palast has a ton on this as well. www.gregpalast.com

Great post! K&R!

[Cosmic Kitten]

24. It's only business :(

Did we expect anything less
from the economic parasites?

Wall St is a leech on working peoples wallets.

[Duval]

25. This is further proof we need regulations for

Wall Street. Sanders and Warren support the idea of stronger regulations.

[raouldukelives]

27. There are those that consciously align themselves with the death dealers.

You will know them by their works. The works carried out for them in the name of shareholder profits.

Nothing matters but the money. Slavery, starvation, austerity, climate change, war. Its all good, as long as they get a taste.

Once corporations have hollowed out the rest of the world, it is only fair and expected they turn their sights on us. Some will have enough insulation from assisting Wall St that they might be OK, for everyone else, you are truly on your own.

Every investor heaps unbearable pain upon the least of this world. And then they have the audacity to act like they genuinely care about others. That is the sickest part. The disconnect, the inability to recognize and assume responsibility for ones actions.

Like abolitionist slave owners they preach the gospel of liberty for all while privately doing all they can to deny it.

[rhett o rick]

31. Well said. I would like to add, buying stocks in the stock market isn't "investing", is gambling

on whether the stock price will go up or down. And when someone wins, someone loses. Most of the time the wealthy win and the lower classes lose. And those that have their retirements in the Stock Market are risking every thing.

[Jack Rabbit]

29. K/R

Thank you, Rick.

Anyone who thinks the Greek people deserve to suffer a generation or two of austerity and thinks Greece's creditors are blameless doesn't know what he's talking about.

They world will be a much better place without megabanks as we know them.

[WDIM]

30. This is true loan sharking and extortion of the tax payers

Racketeering charges should be brought against Goldmans-Sachs. Organized crime-syndicates run our banks and they just keep taking and taking from the people. Their narcissistic greed is digusting.

The wealthy have taken enough already it is time to say no more!

[AtomicKitten]

36. US taxpayers are back on the hook for dicey derivatives again.

Rolling back reform with a poison pill in the Omnibus bill .

The f*ckers will bring America to its knees again, it's just a matter of time.