Skip to main content

View Diary: Taibbi On Goldman's “Devastating” Insider Expose Of Its Moral Bankruptcy In Today’s NYT (128 comments)

Comment Preferences

  •  If you don't believe the article I referenced..... (0+ / 0-)

    Then research the entire story of how Goldman Sachs was involved in the Greek story as I am sure you will find some truth to the entire disgusting involvement out there:  I have, but did not want to list all of the stories pertaining to my comment.

    “The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.” — Marcus Aurelius

    by LamontCranston on Thu Mar 15, 2012 at 08:14:30 AM PDT

    [ Parent ]

    •  Just read this one... (1+ / 0-)
      Recommended by:


      This story shows how much misinformation is out there. I've done a heckuva lot of research on this, and I'm convinced the Greek-Goldman stories are all planted to save the bankers a lot of cash.

      But why did the large negative market value of the swaps not appear on the liability side of Greece’s balance sheet?

      The answer can be found in ESA95, a 243-page manual on government deficit and debt accounting, published by the European Commission and Eurostat in 2002. As revealed by Piga, the drafting of ESA95’s section on derivatives was the subject of fierce arguments between the government statisticians and debt managers of certain eurozone countries.

      The statisticians wanted derivatives-related cashflows to be treated as financial transactions, with no effect on deficit or interest costs, and with the derivatives’ current market value stated as an asset or liability. The debt managers opposed this, insisting on having the freedom to use derivatives to adjust deficit ratios. The published version of ESA95 reflects the victory of the debt managers in this argument with a series of last-minute amendments.

      In particular, ESA95 states in a page-long ‘clarification’ that ‘streams of interest payments under swaps agreements will continue… having an impact on general government net borrowing/net lending’. In other words, upfront swap payments – which Eurostat classifies as interest – can reduce debt, without the corresponding negative market value of the swap increasing it. According to ESA95, the clarification only covers ‘currency swaps based on existing liabilities’.

      Legitimate transaction

      There is no doubt that Goldman Sachs’ deal with Greece was a completely legitimate transaction under Eurostat rules. Moreover, both Goldman Sachs and Greece’s public debt division are following a path well trodden by other European sovereigns and derivatives dealers. However, like many accounting-driven derivatives transactions, such deals are bound to create discomfort among those who like accounts to reflect economic reality. For example, the Greece-Goldman deal may be of interest to credit rating agency Standard & Poor’s, which upgraded Greece’s long-term debt from A to A+ in June 2003.

      I have a lot of links on this that show the deal was actually sold to a private bank in Greece, and it appears on that banks website to this day as Titlos SA, with a time stamp from 2002. Other articles show that many European countries did the same deal, even Germany to the tune of 50 billion.

      Then there's this article which questions the reporting of Greek numbers back then and whether they were really outside the Maastricht Margins:

      However, this issue is totally removed from that of forged statistics. It has become a throwaway line for commentators and journalists to write that Greece fibbed its way into the euro. This misconception is largely driven by the decision of the New Democracy government that came to power in March 2004 to conduct an audit of public finances that led to Greece’s budget deficit figure being revised upward, above the 3 percent of gross domestic product limit for euro-area members. However, the deficit increase was largely down to the conservative administration changing the way military expenditure was recorded. Rather than record the spending when the procurements were delivered, it attributed them to the date when the orders were made. This exposed a weakness in the way that the eurozone treated statistics. By failing to agree on a uniform system for all, it allowed statistics to be open to political manipulation in several member states, not just Greece. It is an issue that the European Commission has only addressed over the last few months. As Dimitris Kontogiannis revealed in Kathimerini English Edition recently, the EU now uses the delivery method to record procurements, which means Greece’s deficit when it joined the European Monetary Union in 1999 met the 3 percent target.
      I would further point out that the Maastricht treaty limits were obliterated by France and Germany in the early part of the decade, so whether Greece met the 3% or not in 2001 wouldn't have mattered later on since the Maastricht limits were lifted for all European countries. That doesn't mean Greece should have joined the euro, but it does mean it would have made the threshold whether or not the Goldman deal was completed. Remember, the deal was for 1 billion, and total GDP was around 250 billion, so we're talking about masking .4% off the budget deficit.

      Compare that to European attitudes now:

      In their second review of the programme (published in December) the IMF said the following: “Staff questions both the timing of the transfer and the appropriateness of in effect using an accounting technique to mask the true fiscal position”.  That is to say the Fund has a double role here – to talk the efforts of the Portuguese administration up before the world’s press, and to try and keep the politicians in line in the background.

      So achieving last years target was not easy (see above chart which comes from an excellent research report from Citi analyst Jürgen Michels and his team), with the day only being saved was by a one-off transfer, a technicality which means that this years deficit reduction will effectively be from a real base of 7.8% of GDP (5.9% + 1.9%) to 4.5%  (or 3.3 percentage points), which is significantly  larger than the 2011 reduction which was really from 9.1% in 2010 to only 7.8% (or 1.3 percentage points – ie the fiscal “effort” in 2012 will be two and a half times as big as the 2011 one).

      Without the accounting “fudge” revenue would have come in significantly under target, and this highlights one of the big problems in all the deficit reduction programmes that are currently in place on Europe’s periphery, namely that the economic contraction associated with austerity programmes (in uncompetitive economies) produces a severe fall in revenue, one which is not necessarily associated in linear fashion with the output fall itself.

      These are precisely the same type of warnings that both the IMF and Eurostat issued in the early 2000s in relation to both Greek and Italian debt. There was no controversy then, just as there is no controversy now on the Portuguese shuffle (indeed, the Eurogroup said Portugal is on target). So then why this revisionist look at Goldman and Greece, when that deal was a .4% mask of the deficit, and here we have a 1.9% mask?

      My only conclusion: the idea that the Greeks and Goldman were liars plays into the storyline that allows bankers to be absolved from risk in lending to sovereigns, and if you look at how the Greek debt crisis has been treated (Greece only managed to reduce debt to GDP from 164% to 161% with the restructuring last week precisely because most of the debt has been transferred to the European taxpayer) you realize how powerful this storyline is. According to the latest BIS report, the big European banks have largely sold off their Greek bonds long before the restructuring.

      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 Thu Mar 15, 2012 at 08:39:54 AM PDT

      [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site