Jean Quatremer, Goldman Sachs, and Greece

Over on the financial blog Naked Capitalism today there are some very interesting links concerning the seemingly nefarious role Goldman Sachs has played in the recent past with the Greek government, that government’s attempts to both hide its debt and to find ways to fund it, and with the Eurozone in general.

The headline link is to a very revealing blogpost by Jean Quatremer, Brussels/European correspondent for the French newspaper Libération – but the link is only to the French original. Herewith my translation of that, after the jump, complete with the links Quatremer uses within his piece (other than when they go to Wikipedia or to general homepage sites):

Goldman Sachs vs. (Everyone vs.) Greece
On 6 February, on this blog, I announced that Greece had been the victim of a speculative attack on the part of a large American commercial bank and American “hedge funds” (speculative funds) which were betting on a payments-default from Athens. Up to that point we could know for sure that there had been speculation, but no one had succeeded in attaching a name to those who were looking to destabilize Greece and the eurozone. At the time, my sources had advised me against citing any names, thus resulting in a somewhat frustrating article, for you and for me. But since then the rumors in circulation have become more precise, and the names have been openly cited in the media, even if – understandably so – with great prudence. The Greek government has itself increasingly implicated them openly. I can therefore confirm to you that, according to mutually-consistent sources, Goldman Sachs and the hedge fund run by John Paulson are said to be the two principal actors in the attacks against Greece and the euro. I already set out in detail for you in my 6 February post the speculative mechanism and so I won’t go back over that.

The most shocking aspect of this affair is without doubt the role played by Goldman Sachs, which, while at the same time advising the Greek government, has also taken up in secret positions against Greece and the euro. This troubling role is illustrated by the recent incident recalled by Der Spiegel of 8 February and the New York Times of 14 February(1): in 2002, the American bank [referring to Goldman Sachs] assisted Greece, for a remuneration of 300 million dollars, in some “creative accounting” operations intended to camouflage part of its debt (I’ll come back to this in a subsequent article). It is not irrelevant to know that at that time Goldman’s European vice-president was none other than Mario Draghi, later to become governor of the Italian central bank, and who just saw the post of vice-president of the European Central Bank slip under his nose. This particular role by Goldman Sachs is illustrated by the fact that the bank has always participated in syndications in Greece (and in Portugal as well): this involving a consortium of banks charged by a government with placing its debt with investors when it cannot be sure of placing it directly on the market by a public emission.

You will also recall that, on 25 January, Greece managed to place 5-year paper in the amount of 8 billion euros, even though the original intention had been to issue only 3 billion: demand had reached 25 billion euros! Within the syndicate that placed this Greek paper, Goldman Sachs was certainly to be found. Up to that point, nothing out of the ordinary. It’s afterwards that a curious fact cropped up.

After this spectacular success, everyone thought that the markets had calmed down, since they had just shown that they did not believe in a Greek default. And in fact a certain lull ensued. However, since Wednesday it has been stormy again. An article from the Financial Times, the sole paper that market-operators will read, had just confirmed news to the effect that China had refused to buy 23 billion euros of Greek debt, a “private placement” engineered by . . . Goldman Sachs. What was this about? When a government fears that it won’t be able to place its debt, it asks a bank directly to place that on its behalf with one or several investors. It’s a sign of panic. And the fact that Peking is said to have declined the offer is straight-out disquieting. In brief, two reasons for the markets to flee Greece. It will be denied, but the markets will anyway exaggerate the risk premium they assign to Athens on the high side, to boost their profits. Those who arranged the flight win on two fronts: their loans return more, as do their CDS, those insurance policies deemed capable of protecting them against the default of a borrowing State (see my post of 6 February).

The problem is that this flight is astonishing, as this type of operation is assumed to remain totally secret. However, since then the Financial Times has revealed that it was in fact Goldman Sachs’ number two, Gary Cohn, who is said to have traveled in November and in January to Athens to try to convince the Greek government to avail itself of his firm’s services to place 25 billion euros of debt with China. In vain. And by a deliberate action this information was then made public, putting Greece almost on her knees and causing the euro to fall.

According to today’s Les Échos, Simon Johnson, former “chief economist” of the IMF, is calling for the European Commission to launch an inquiry into Goldman Sach’s actions. That does effectively seem to be called for.(2)

(1) This affair is by no means a secret. For example, Mark Brown and Alex Chambers describe the operation in their article published on 1 September 2005 in Euromoney, explicitly titled “How Europe’s governments have ENRONized their debts.”
(2) See also the embarrassing questions he poses to Mario Draghi.

Très interéssant, eh? As I say, go back to the regular English part of Yves Smith’s “Links and Short Takes” posting for today to savor the rest.

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