GOLDMAN SACHS COULD BE SUED
FOR HELPING HIDE DEBTS WHEN IT JOINED EURO
GOLDMAN SACHS faces the prospect of potential legal action from GREECE over the complex financial deals in 2001 that many blame for its subsequent debt crisis.
A leading adviser to debt-riven countries has offered to help ATHENS recover some of the vast profits made by the investment bank.
The Independent has learnt that a former GOLDMAN banker, who has advised indebted governments on recovering losses made from complex transactions with banks, has written to the GREEK government to advise that it has a chance of clawing back some of the hundreds of millions of dollars it paid GOLDMAN to secure its position in the single currency.
The development came as GREECE edged towards a last-minute deal with its creditors which will keep it from crashing out of the single currency.
The deal is based on fresh economic reform proposals submitted by ATHENS which bear a striking similarity to the creditors’ offerrejected by the GREEK people in the referendum– sparking claims that Prime Minister ALEXIS TSIPRAS has effectively executed a huge U-turn in order to avoid a catastrophic “GREXIT”.
GREECE managed to keep within the strict MAASTRICHT rules for EUROZONE membership largely because of complex financial deals created by the investment bank which critics say disguised the extent of the country’s outstanding debts.
GOLDMAN SACHS THE BIG WINNER
GOLDMAN SACHS is said to have made as much as $500m from the transactions known as “swaps”. It denies that figure but declines to say what the correct one is.
The banker who stitched it together, Oxford-educated ANTIGONE LOUDIADIS, was reportedly paid up to $12m in the year of the deal. Now JABER GEORGE JABBOUR, who formerly designed swaps at GOLDMAN, has told the GREEK government in a formal letter that it could “right historical wrongs as part of [its] plan to reduce GREECE’S debt”.
Mr JABBOUR successfully assisted PORTUGAL in renegotiating complex trades naively done with LONDON banks during the financial crisis. His work helped trigger a parliamentary inquiry and cost many senior officials and politicians their jobs. It also triggered major compensation payments by banks to the PORTUGUESE taxpayer.
Mr JABBOUR, who now runs ETHOS CAPITAL ADVISORS, has also helped expose other cases including allegations against GOLDMAN SACHS and SOCIÉTÉ GÉNÉRALE over their dealings with LIBYA relating to financial transactions that left the country’s taxpayers billions of dollars out of pocket. Both banks deny wrongdoing.
Based on publicly available information, he believes the size of the profit GOLDMAN made on the transactions was unreasonable. Scrutiny and analysis of the documents and email exchanges could give GREECE grounds to seek compensation and assess if the deals were executed for the sole purpose of concealing the country’s debts.
LENDERS TOOK GREECE’S EURO MEMBERSHIP AS A STAMP OF CREDITWORTHINESS
GREECE’S membership of the euro gave it access to billions of easy credit which it was then incapable of paying back, leading to its current crisis. Lenders took its euro membership as a stamp of creditworthiness, but the true state of its economy was far less healthy.
Under Ms LOUDIADIS’S guidance, GOLDMAN swapped debt issued by GREECE in dollars and yen for euros which were priced at a historical exchange rate that made the debt look smaller than it actually was. The swaps reportedly made about 2 per cent of GREECE’S debt disappear from its national accounts.
The size and structure of the deal enabled the bank to charge a far bigger fee than is usual in swap transactions, and GOLDMAN persuaded GREECE not to test the transaction with competitors to ensure it was getting good value for money.
GREECE DID NOT REPORT THE GOLDMAN SACHS TRANSACTIONS IN 2008
Such deals were not uncommon among smaller countries attempting to enter the EUROZONE club, but they were stopped by the EU economic statistics agency Eurostat in 2008. Eurostat has said GREECE did not report the GOLDMAN SACHS transactions in 2008, when it and other countries were told to restate their accounts.
Two of the men in charge of the debt management agency of GREECE at the time have argued the department did not understand what it was buying and lacked the expertise to judge the risks or costs.
One, CHRISTOFOROS SARDELIS, told BLOOMBERG news agency that Ms LOUDIADIS offered one swap which had what is known as a “teaser rate”, or three-year grace period. But the GREEK official realized three months after signing the deal that it was far more complicated than he first thought – a situation exacerbated by the 9/11 attacks’ downward impact on global interest rates. While GOLDMAN reworked the deal, GREECE continued to lose heavily.
SAUL HAYDON ROWE, a partner at TURING EXPERTS, a team of former bankers who advise in court cases involving bank derivatives, said: “GREECE would have to unpick the trades completely and look into what advice was given, and how much GOLDMAN might have expected to make over the course of the transaction.
“For a legal action to go ahead, GREECE would have to show that GOLDMAN SACHS said something it knew was untrue or which it did not care was true or not.”
GOLDMAN said its transactions were in accordance with Eurostat rules. It said they reduced GREECE’S foreign denominated debts by €2.37bn, or 1.6 per cent in terms of debt-to-GDP ratio, adding that they had “minimal effect on the country’s overall fiscal situation.”
GOLDMAN, JUST PAY UP
Below article was posted on this blog October 2011!
As GREECE teeters on the edge of sovereign default of around $300 billion and sends shudders of premonition throughout the global economy, the fingerprints of GOLDMAN SACHS are once again to be found, as in so many crises beforehand. SREERAM CHAULIA argues that GOLDMAN should accept moral responsibility and contribute funds to bailing out GREECE.
BANKING INSTITUTIONS ARE MORE DANGEROUS THAN STANDING ARMIES
As more skeletons fall out of the closet, it is coming to light that GREECE'S profligacy was abetted and managed for several years by the top Wall Street financial firms via complex instruments.
FOR CONSULTANCY, WHICH HELPED GREECE JOIN THE EURO BY HOOK OR BY CROOK, GOLDMAN RECEIVED FEES OF $300 MILLION
In 2001, before spendthrift GREECE could enter the EUROZONE by satisfying the deficit limit rules of the currency union, GOLDMAN SACHS entered the picture with a tricky currency trade deal that would hide billions of dollars of additional public borrowing and not make it look like debt. For this piece of consultancy, which helped GREECE join the euro by hook or by crook, GOLDMAN received fees of $300 million.
In 2005, GOLDMAN sold to the National Bank of GREECE an “interest rate swap,” one of the notorious derivatives that have come under scrutiny since the WALL STREET implosion of 2008. GREEK critics of such dubious debt-hiding transactions had warned their government of the mounting long-term liabilities to the likes of GOLDMAN, but to no avail.
GREEK ASSETS SELL OFF –HEAVILY PROMOTED BY GERMAN MINISTER OF FINANCE - WOLFGANG SCHÄUBLE AND GOLDMAN SACHS
According to news reports, GREECE mortgaged revenue-generating assets like the national lottery, airports and highways as part of the agreements with GOLDMAN in what amounted to "a garage sale on a national scale."
GOLDMAN SACHS is reported to have attempted a redux of 2001 when its president, GARY COHN, landed in ATHENS in November 2009 with a similar debt deferral proposal that would continue to fool investors and the EU. This time around, GREECE did not oblige.
SIMILAR BORROWING BINGES OCCURRED WITH PIGS, COURTESY OF FINANCIAL DODGING EXPERTISE OF GOLDMAN, JP MORGAN AND ENTIRE CADRE OF HEDGE FUNDS
But the damage had already been done over a decade of spiraling foreign debt that was repackaged and postponed with WALL STREET'S wizardry. We now know that similar borrowing binges were occurring in the rest of the PIGS (PORTUGAL, ITALY, GREECE and SPAIN) economies courtesy of the financial dodging expertise of GOLDMAN, JPMORGAN and the entire cadre of Hedge Funds.
Economies of developing countries, especially in AFRICA and LATIN AMERICA, have endured decades of bitter experiences of falling into debt traps that sap productive resources, benefit speculative financiers and weaken state capacities to govern.
In their cases, the BRETTON WOODS institutions acted as economic restructuring consultants and funding taps that only opened if the recipients met crushing conditionalities.
“ECONOMIC HIT MAN” LURE POOR COUNTRIES INTO ACCEPTING MASSIVE “DEVELOPING LOANS” FROM THE WORLD BANK AND USAID
JOHN PERKINS'S book, "Confessions of an Economic Hit Man," reveals how highly paid professionals with knowledge of macroeconomics and world affairs were deployed to convince political and financial leaders of poor countries to accept massive "development loans" from the WORLD BANK and USAID. Once ensnared, the supplicants would be subjected to pressure on different issues from WASHINGTON.
In the PIGS economies, it was not so much strategically motivated hit men working for the U.S. government but rather some freewheeling U.S. financial corporations that could make a killing out of clients who were addicted to reckless state spending.
In late February 2010, as the EU began investigating the WALL STREET shenanigans in ATHENS, GOLDMAN defended its GREEK misadventures by arguing, predictably enough, that they were legal actions consistent with the regulations of their time.
Of course, much of the fault lay with the GREEK politicians who were seduced by the WALL STREET financial advisers who, for their part, were simply pursuing the bread-and-butter business of circulating wealth for profit.
DID U.S. INVESTMENT BANKS DELIBERATELY DUG THE GRAVES OF PIGS TO WEAKEN THE EURO?
Had ATHENS been more disciplined in organizing its finances, there would not have been a window of opportunity for GOLDMAN and company to exploit its vulnerability.
But southern EUROPE'S debt-proneness has systemic consequences from which WALL STREET cannot easily extricate itself. While there is no evidence to suggest that U.S. investment banks deliberately dug the graves of PIGS to weaken the EURO, the disastrous social costs of their financial chicanery call for reparations.
It may not be unfair if the EU demands that GOLDMAN, which now leads the earnings chart on WALL STREET, accept moral responsibility and contribute to bailing out GREECE.
Who knows — now that even the U.S. Federal Reserve is making noises about investigating GOLDMAN’S practices, the firm may be in a hurry to pay up.
Written by SREERAM CHAULIA
Editor's Note: This feature is adapted from a longer version published in The Financial Express on February 25, 2010