Posts Tagged ‘goldman sachs’

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Running for cover

February 17, 2010

Trouble looming, potentially, with Greece’s use of currency swaps to cover up its debt:

European Union leaders last week ordered Greece to get its deficit under control and vowed “determined” action to staunch the worst crisis in the euro’s 11-year history. Standard & Poor’s and Fitch Ratings are questioning Greece over its use of the swap agreements, said two people with direct knowledge of the situation, who declined to be identified because the talks are private.

“Greece used accounting tricks to hide its deficit and this is a huge problem,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and Honorary Professor at the European Business School, said in an interview. “The rating agencies are doing the right thing, but it may be too little too late. The EU slept through this.”

And its not just Goldman Sachs, currently close advisors to the Greek government, that are now under scrutiny for arranging the swaps. Like kicking over a log, the Greek crisis has brought all sorts of wriggling creatures into the light of day.

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Unexploded mines

February 10, 2010

Goldman Sachs have been helping the Greek government massage its debt figures – at no little reward to themselves, of course.

From 2002 onwards, Greece’s public finance officials arranged a neat little deal with the US megabank to hide additional debt through financial derivatives known as cross currency swaps. These involve swapping debt issued in one currency for another, for a certain, limited period of time.

There’s nothing greatly unusual in this – the market for these kinds of swaps is now huge. Goldman Sachs and the Greek government, however, did something a little more creative, as it were. Der Spiegel takes up the story (via Alexis):

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

This credit disguised as a swap didn’t show up in the Greek debt statistics. Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives. “The Maastricht rules can be circumvented quite legally through swaps,” says a German derivatives dealer.

This lax accounting means it’s not, as result, quite clear how many other derivatives UXBs are now littering the Mediterranean. Only Goldman Sachs will benefit when they explode:

At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005.

…and guess, by-the-by, which major investment bank is now apparently lead advisor the Greek government on handling the debt crisis? You couldn’t make it up, as they say.