Goldman Sachs, Greek Debt and Greed


I’m currently reading Flash Boys by Michael Lewis, a detailed and at times, inconceivable, account of the way High Frequency Traders manipulate stock markets to make substantial gains, when I came across a throwaway line about the bank, Goldman Sachs, and the Greek Debt crisis.

Now, forgive me if you have already read about this, but I hadn’t come across the story until now and I’m sure I’m not the only one who was unaware of it.

The story begins in 2001 with Greece desperately trying to live up to its Maastricht Treaty euro-zone commitments to demonstrate an improvement in its public finances when in fact they were getting worse, not better.

They turned to US bank Goldman Sachs for help and found it in the shape of one Lloyd Blankfein, who has now risen to the lofty heights of CEO, who proposed a secret loan of €2.8 billion for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.

This arrangement magically shaved 2% off Greece’s debt and Blankfein and his team collected a fee of €600 million which accounted for 12% of Goldman’s total earnings from trading and investments in 2001 in just one deal – no wonder he’s now the CEO.

Unfortunately the magic soon wore off and the deal turned sour – what had started out as a €2.8 billion ‘hidden loan’ had become, by 2005, a very visible, almost double the amount, debt of €5.1 billion when it was restructured by Goldman’s then international division managing director, Mario Draghi.

Does the name sound familiar? Yes, the very same Mario Draghi who is now head of the European Central Bank and a key figure in the current Greek bail-out.

Of course, Goldman’s aren’t the only ones to have benefited from Greece’s misfortune, a recent report from the private, non-profit Leibniz Institute of Economic Research says that over the last 5 years Germany has profited by €100 billion, equivalent to 3% of its GDP, as investors have fled from Greece into the welcoming arms of Germany.

“These savings exceed the costs of the crisis – even if Greece were to default on its entire debt,” the study said.

So, if Greece had refused Goldman’s helpful but over-complicated and ultimately very costly, interest rate swap deal in the first place and ‘fessed up to their public sector failings way back in 2001 perhaps they wouldn’t have been in the mess that they are in today with, what is by all accounts, an unsustainable bail out deal adding another €85 billion to their already crippling debts.

And the greed?

Well the dictionary definition of greed is: the inordinate desire to possess wealth, goods, or objects of abstract value with the intention to keep it for one’s self, far beyond the dictates of basic survival and comfort.

With Goldman Sachs and the German nation getting ever richer at the expense of the Greek people it is clear who, amongst others, are the perpetrators of greed and who is the victim

Published by David Doughty

Serial entrepreneur, Software sales and marketing specialist, Chartered Director, Chief Executive, Chair, Non-executive roles in private and public sector, Business consultant and mentor.

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