Monday, May 21, 2012

Greek Debt and the Hubris of Goldman Sachs



As  the world watches Greece do a slow motion dance over the cliff, nobody seems to be paying attention to the villain of the piece. Is anybody noticing Goldman Sachs here, folks? Remember them?  They are the bank that sold Greece those credit default swaps and other untraceable, unfathomable, arcane financial instruments  in the first place?  Does anybody remember that Goldman Sachs is the bank  that allowed the Greeks to hide(even from themselves) the extent of the debt or the impossibility of paying it back.  Here's what Forbes magazine had to say back in 2010.

"Goldman Sachs arranged swaps that effectively allowed Greece to borrow 1 billion euros without adding to its official public debt. While it arranged the swaps, Goldman also sought to buy insurance on Greek debt and engage in other trades to protect itself against the risk of a default on those swaps. Eventually, Goldman sold the swaps to the national bank of Greece.
Despite its role in creating swaps that may have allowed the Greek government to mask its growing debts, Goldman has no net exposure to a default on Greek debt, a person familiar with the matter says. Goldman is “flat” when it comes to Greece, the person says. Which is to say, its long and short exposure to a potential Greek default are in balance."


How convenient-- Goldman Sachs sells them the junk and then shorts the sale, thus betting against its own client.  You can't even do that in Las Vegas.

Goldman Sachs has been doing the same sort of thing that payday loan companies or Mafia  loan sharks do.They just wear nicer suits and do things on a bigger scale.  They know that the mark, er I mean the client, can't pay back the debt, but they've got a special Wall Street ap for that-- they just short the Greek bonds and collect a fat commission coming and going.  Forget about ethics. It's caveat emptor all the way.

Too bad these guys learned their trade in the halls of Harvard rather than on the streets, because they really don't seem to get that they are actually criminals, and that they are not, definitely NOT, untouchable. They really think they are above the law and are not doing anything wrong.

The Greeks know all about it too-- Their word for it is hubris, which is basically a classical Greek term meaning getting too big for your britches. The concept is beautifully illustrated in the story of Daedalus and his son, Icarus.   Daedalus, imprisoned in a tower, decided to escape like a bird, by flying away.  He fabricated "wings" from light wooden frames to which feathers were secured with wax.  He strapped the wings onto his son, Icarus and off Icarus went-- but ( and here's the Hubris part) Icarus flew too close to the sun and the wax melted and the boy plunged to his death in what is now called the Icarian Sea.  

 The wheel of fate is turning on Goldman too.  It and the rest of the high flying investment banking crowd that created the crisis are still in are flying very close to the sun.    Pass the billion dollar bonuses please and don't worry about the little people.   

 I hope that there is still enough good sense, not to mention morality, left in the international community to reign these guys in before they plunge into the sea and take the rest of us with them. 




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