In 2003, Nick Dunbar exposed how Goldman Sachs was working to conceal the size of Greece's debt in order to help Greece qualify for inclusion in the European Union.
At the time, Greek and financial officials claimed Dunbar was "making something out of nothing."
However, today we have a much clearer picture of how – and why – Goldman Sachs indeed helped Greece deceive the world as to the size of the country's debt. And today, we understand the extent of the damage done as the European Union clamors for austerity, clamors to squeeze Greece's most vulnerable citizens for the mistakes of those with money and political power.
For a visual picture, I highly recommend viewing Dunbar's piece for the BBC this week (below) on how Goldman Sachs, with a blind eye from EU officials and at the behest of the Greek government, cooked Greece's books.
In order for Greece to be admitted into the E.U., the country had to show that it was working to reduce its debt – it had to show directionality. However, as Dunbar notes in his piece, for a debt-addicted country preparing to host the 2004 Olympic Games, it was nearly impossible for Greece to demonstrate that its debt ratio was declining each year, for the ratio was in truth steadily increasing.
Enter Goldman Sachs.
Greek officials, under pressure from E.U. officials to find a way to show it was reducing its debt, decided that it couldn't reduce spending or pay back its debt enough to satisfy the E.U. So the country turned to Goldman Sachs for some, ehm, accounting assistance. Goldman Sachs was all too willing to lend a helping hand by using an (incredibly) legal and completely secret method.
Here's how it worked: Greece made a deal with Goldman Sachs – hidden at the time from global markets – to have the financial institution secretly hide its debt. How did Goldman Sachs hide 2.8 billion Euros of Greece's debt, exactly? Just like you or I can exchange our currency at a bank, Goldman Sachs swapped foreign bonds into domestic debt. However, it did so by using a completely fictitious exchange rate to make Greece's debt appear smaller than it actually was.
And poof, 2.8 billion Euros worth of Greek debt vanished.
In reality, Goldman Sachs lent Greece the amount of the debt it was making disappear via the fictitious exchange rate – a deadly bet that has come back to hurt Greece and make Goldman Sachs very rich.
And this was all legal, albeit secret.
Of course, to the E.U. and the rest of the world, Greece was doing what it had been asked to do: reduce its debt trend. The reality, though, was that Greece was falling even farther into debt to, among other institutions, Goldman Sachs.
How could such a deal be allowed?
Simple: just as in the United States, where our government's financial institutions failed to protect (and even helped precipitate) the subprime fiasco, financial institutions in Europe helped to create an environment in which countries would look to investment banks such as Goldman Sachs to hide, or swap, their debts.
And investment banks, like Goldman Sachs, were all too eager to take advantage of countries, such as Greece, by using fictitious instruments that were being ignored and certainly allowed (if not promoted) by the E.U.
Which is why, as Dunbar notes, E.U. officials' anger with Greece is nothing but pure hypocrisy.
But hypocrisy is a concept. An idea. An ethereal truth.
What's real? Austerity. The reduction of social service jobs. The cutting of minimum wage. The struggling of families in Greece to put food on the table.
Follow me on Twitter @David_EHG
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