Is Goldman Sachs in the Middle of the Greek Crisis?

Posted by Greg L on May 6, 2010 · 1 Comment 

 Goldman Sachs seems to be in the middle of yet another mess.  It appears that they were involved in helping Greece set up some “liars” loans via some complex derivatives trades thus helping Greece to meet EU rules by hiding the extent of its deficit.  Again, this is likely not isolated nor was Goldman alone in this sort of practice. 

US investment banks seemed to have preyed on a number of governments, both foreign and domestic, with opaque financial products.  There’s been a town near me who entered an interest rate swap with an investment bank that went against them resulting in local taxpayers being on the hook to pay more property taxes as a result.  This is not quite like the Greek situation, but similar in the sense that all sorts of little understood financial instruments were used to make the banks money often at the expense of unsuspecting and ill advised investors.  Too many people wanted the promised “result” without bothering to understand or even caring how they were going to get there.  Option arm mortgagors wanted the house, so they didn’t look too closely at how the mortgage might adjust.  Cities and towns wanted low interest rates on bonds to hold down taxes, so they didn’t bother to understand how an interest rate swap might go against them and Greece wanted to get into the EU, so it entered transactions to mask its debt even from itself.  At the bottom of each of these was an investment bank with a ready creation off the shelf of the shadow banking system. 

This shadow banking system will prove to be the bane of our existence and it’s clear that it’s global in nature and it’s at the very center of the world’s financial crisis, yet it’s too opaque for people to actually pinpoint what it’s done.

Filed under Economics, Financial Crisis · Tagged with Goldman Sachs, Greek Financial Crisis