Goldman Caught Using European Loophole To Help Massively Understate Greek Deficit

Lloyd Blankfein Goldman Sachs

This looks pretty bad for both Goldman and Greece, as if things could look worse.

According to a scathing piece in Der Spiegel, European statisticians in Luxembourg have had a very difficult time getting proper Greek economic and financial data for years.

Worse yet, Goldman Sachs appears to have been helping Greece take advantage of a European regulatory loophole in order to understate its deficits:

Der Spiegel:

[Emphasis added] Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. “Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future,” one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

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.

Continue reading the full article at Der Spiegel >

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