The Greek funding fiasco caused people to get excited about the supposed sins of Goldman Sachs, missing the real-story. The real lesson is
Conservative governments lie about money and screw up the economy
The previous Greek government engaged in the kind of "off the books" nonsense that the Republicans did here to cause the problem and the conservative German government is lying about finances now to make the problem worse. Goldman-Sachs did not exploit the innocent honesty of industrious Europeans, it just made some smart bets with greedy banks and sleazy governments.
Greece was run by a right wing government, that, as usual, didn't want to tax the rich and could not cut costs, but was stuck with a European Union limit on borrowing, so they found an accounting trick. Conservative accounting is entirely inspired by Enron - all gimmicks and short term shuffling and smoke and mirrors. The trick is essentially a disguised loan with huge balloon payments and Goldman Sachs helped, for a fat fee, arrange it. Now that everything has gone to hell, the conservative German government is blaming the undisciplined Greeks and, of course, the evil American Bankers
"Goldman Sachs broke the spirit of the Maastricht Treaty, though it is not certain it broke the law."
This is what we learnthe German foreign office affairs spokesman said! Oh my! How terrible! Here's an idea: if the transaction was illegal, maybe Greece should refuse to pay Goldman back. But wait! That is never going to happen because of a small detail that the Conservative German government forgot to mention. In an article on the Greek transactionpublished in 2003: (YES! SEVEN YEARS AGO)
Goldman Sachs is known for its conservative approach to credit risk, and chose to hedge its exposure to Greece by immediately placing the risk with a well-known investor in sovereign credit: Frankfurt-based Deutsche Pfandbriefe Bank (Depfa). According to sources, Depfa entered into a credit default swap with Goldman Sachs, selling $1 billion of protection on Greece for up to 20 years. Depfa declined to comment.
Oh! So Goldman was not the only financial concern sleazy enough to get involved in this transaction - others liked the money too. And what kind of bank is Depfa? It's a collapsed part of the Hypo bank recently nationalized at a cost of thirty five billion euros by, ahem, the Conservative German government. That's the Conservative German government that has just been complaining about Greek book-keeping and shady American firms if you are keeping score.
Hypo bought Depfa for €5.7 billion in October 2007. Depfa's business model involved borrowing short-term funds to invest in complex assets such as U.S. mortgage-based securities. Bafin head Jochen Sanio in March told Germany's parliament that he had been skeptical about the Depfa acquisition, but lacked the power to stop or supervise the purchase because Hypo was buying a foreign subsidiary. Mr. Sanio, though a spokeswoman, declined to comment.
In April, a month after the Finance Ministry had received the preliminary audit report with its damning verdict on Hypo's risk management, a group of investors led by U.S. financier J.C. Flowers announced their intention of buying a 24.9% stake in Hypo, which they followed through on.
Those investors now stand to lose most of their investment, as the government plans to fully nationalize Hypo as a fraction of its former value. A spokesman for Mr. Flowers declined to comment
http://online.wsj.com/...
So Germany will never ask Greece to refuse to pay - because the German government now holds the loan. Maybe if the transaction was so terrible, Germany should refund Depfa's fee to Greece? Just kidding. How about that refund to J.C. Flowers for not disclosing the confidential risk management report? Ha ha ha. Sorry, just a little banker joke.
In the end, the problem the German government has with Goldman is that they turned out to be the sleazeballs who had a chair when the music stopped after everyone else was too greedy and shortsighted to plan ahead. And when you look into the loophole that the Greeks used to get the original not-loan, you will undoubtedly find that the German government, the most influential force in European finance, had a hand in that too. It would also be funny to see which big European banks hold the largest parts of Greek debt- you know the bonds that pay a lot because everybody knew Greek accounts were bogus?
So the moral of this story is to please not get spun. Goldman-Sachs is a greedy, amoral, far-to-large, unregulated force for bad on the world stage - just like hundreds of other banks and financial institutions. If you fall for bullshit claims of injured innocence, you might miss the larger lesson:
- Germany's conservative government, like all conservative governments is grossly deceptive about what's really going on in financial transactions.
- Greece's previous government, conservatives, was incompetent and dishonest.
- Financial regulations like the EU regulation which permitted the Greek transaction and Hypo banks extension into the hot Irish banking market need to be made in the light of day and not by interested parties in the dark of night
And thanks very much to DKOS commenter Randomfacts for the comment referencing Felix Solomon's story http://www.dailykos.com/...