Greeks, Beware of Goldman Bearing Gifts

Like a drug dealer who hates to see a client get clean, Goldman sent executives to Greece in November of 2009 with a tempting offer that would have deepened the government's debt even further.
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Like a cat burglar, Goldman Sachs leaves its fingerprints in the most unusual places. The news of Goldman's role in the Greek financial crisis isn't just a black eye for Wall Street. It's also a diplomatic disaster for the United States, whose government has become so intertwined with Goldman that this incident could endanger our relationship with the European Union. Failure to act aggressively could undermine the President's efforts to strengthen our relationships with that part of the world.

The New York Times succinctly summarizes the situation in its article, "Wall Street Helped to Mask Debt Fueling Europe's Crisis," when it writes:

"Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts."

While the underlying financial mechanisms can be complex to follow, the basic situation is this: Nations in the European Union are bound by treaty to keep their indebtedness within certain limits. Goldman Sachs helped structure a deal in which the Greek government was able to conceal its borrowing by labeling the transaction as a "currency trade." So it appears that Goldman may have helped the Greeks evade their treaty obligations with a shady deal.

And this is not unusual behavior for American institutions. JP Morgan Chase did something similar for the government of Italy and, as the Times report suggests, other deals may have been done elsewhere in Europe. These nations have bound their economic fates together in a single union. To undermine one is to potentially undermine all of them.

Here's where it gets tricky for the United States: Goldman Sachs continued its rapacious behavior even after the Federal government bailed them out -- directly (using TARP funds) and indirectly (by paying 100 cents on the dollar for AIG debts that some analysts think were overstated). Like a drug dealer who hates to see a client get clean, Goldman sent executives to Greece in November of 2009 with another tempting offer that would have deepened the government's debt even further.

This time the Greeks said no. They had already used revenue generators such as lottery income and airport usage fees as collateral on previous loans. (Lottery fees make a dark kind of sense in this case; if there's one thing Goldman executives understand, it's gambling.)

What does it look like for an institution that has been rescued by the US Government to encourage over-leveraged governments to go even more deeply into debt? Goldman executives have been embedded in the government for years and enjoy close relationships with the President's two senior financial officials, Tim Geithner and Larry Summers. (Summers received $135,000 from Goldman for a one-day visit in April of 2008 when, as Glenn Greenwald observed, it was assumed he would be a senior financial official in the next Administration.)

As Simon Johnson points out, the Federal Reserve may give Goldman the usual soft treatment for its behavior in the European Union. But Johnson points out that the European Commission, which has jurisdiction over this issue, isn't likely to be so forgiving. He expects an audit, and offers some suggested lines of inquiry.

This could prove to be a major embarrassment for the US, and an impediment to winning support the US will need from Europe on a range of diplomatic initiatives.

We're told that one of the Greek banking deals was named after Aeolos, the Greek god of the winds. Other gods are available for future Goldman deals: There's always Hermes, who's known for representing flight and speed but is also responsible for commerce. Even more aptly, he's the god of mischief and theft. Or there's the more minor figure of Adephagia, the goddess of gluttony.

And if our government doesn't take a firmer hand with rogue bankers like Goldman they may find themselves in the hands of Ate. Haven't heard of her? She's the goddess of foolish actions.

Richard (RJ) Eskow, a consultant and writer, is a Senior Fellow with the Campaign for America's Future. He blogs at:

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