Sharky:

Below is a small example of Collateralized Debt Obligations as they apply to the Greek debt crisis. This represents one small infinitesimal portion of the CDO's plaguing the worldwide economic fabric. The totality of CDO's in existence, are in excess of $600 Trillion that still have to be unwound. The Greek CDO's are at the nexus of a situation which could endanger the Euro. Just think if certain other members of the EEU who have fiscal problems,(Spain, Portugal, Italy and others present similar issues). Then, throw in CDO's in the US and the rest of the World. The amount of CDO's in the world is an amount greater than the World Gross Domestic Product for 600 years year l. Do any think that this issue rises to the level of being a concern we should pay attention to?

Brian

Feb 17, 2010

AP / Petros Giannakouris

Greece’s economy, much like the ancient Parthenon, is in ruin.

By Robert Scheer

Editor’s note: An earlier version of this column incorrectly stated that Greece joined the European Union in 2001. As our diligent readers have pointed out, Greece joined in 1981. The author meant that Greece joined the European Monetary Union of the EU in 2001, when it adopted the euro.

“What is this Goldman Sachs and why has it caused us so much grief?” is a question they must be asking in even the most remote of Greek villages, as they are throughout much of this economically troubled world. The Greek financial scandal in which Goldman Sachs stands accused of selling dubious derivatives that concealed enormous government debt has sent the Greek economy and European markets into a tailspin. But that’s just part of a made-in-the-USA banking hustle that has haunted folks at home and abroad.

At the heart of the worldwide banking meltdown are those mysterious unregulated derivatives that Goldman and JPMorgan led the way in selling. But Greece’s case did not involve the usual questionable mortgages packaged into derivatives with credit default swaps backing them up, but rather expected revenue on airport fees and other potential sources of the cashed-strapped government’s future income.

As The New York Times headlined it: “Wall St. Helped to Mask Debt Fueling Europe’s Crisis.” The story described the scam succinctly: “As in the American subprime crisis and the implosion of American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere. ... Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.”

As a result of such shenanigans back in 2001, Greece was allowed to join the Economic and Monetary Union of the European Union while running up enormous debt that went undetected. Greece’s neighbors will now be forced to bail it out, much as U.S. taxpayers have done for banks as a result of the scams Goldman and other financial houses pulled off in this country. The common denominator is that the packagers of the collateralized debt securities, be they based on subprime mortgages or government airport fees, have no real interest in the integrity of the packages, for they will balance them out with credit default swaps that pay off when the assets prove toxic. And they will make their lucrative commissions coming and going, no matter what goes wrong. Even after all the trouble in Greece, Goldman President Gary D. Cohn was back in that country last November with a new derivative scam based on potential revenue from Greece’s health care system.

Advertisement

Just as it did with mortgages in the U.S., Goldman in effect bet against the collateralized Greek debt obligations. The basic issue is the same. The thing being sold need not be understood or correctly assessed as to its value. In his recent memoir, former Goldman Chairman Hank Paulson confesses that as late as August 2006 when as the newly appointed treasury secretary he briefed George W. Bush on the impending derivatives crisis he did not even know that the packages that Goldman and others had sold were based on mortgages. “I misread the cause, and the scale, of the coming disaster,” he admits, adding, “Notably absent from my presentation was any mention of problems in housing and mortgages.” In recalling when an obviously perplexed President Bush asked him “How did this happen?” Paulson says in his memoir: “It was a humbling question for someone from the financial sector to be asked—after all, we were the ones responsible.”

He got that right. The financial sector was and is responsible, but it still resists increased transparency and other necessary regulations over the derivatives that gamblers like Paulson themselves don’t understand. As Peter Eavis writes in The Wall Street Journal: “How many more crises will it take? The Greek emergency is a reminder of how little has been done to fix large, potentially unstable parts of the financial system. ... The banking lobby is resisting efforts to overhaul the $605 trillion market for derivatives that don’t trade on exchanges.”

The U.S. comptroller of the currency estimates that Goldman Sachs has a derivative “credit exposure” that is a whopping 858 percent of its risk-based capital and that JPMorgan Chase is in second place at 290 percent. That statement calls into question the savvy of President Obama, who crowed just last week in defense of Goldman CEO Lloyd Blankfein and Jamie Dimon, his old Chicago buddy who heads JPMorgan Chase, “I know both those guys; they are very savvy businessmen.” Tell it to the Greeks.

TAGS: bailout banks bush credit default swaps

Next item: The GOP's Mixed Medicare MessageFeb 17, 2010

AP / Petros Giannakouris

Greece’s economy, much like the ancient Parthenon, is in ruin.

By Robert Scheer

Editor’s note: An earlier version of this column incorrectly stated that Greece joined the European Union in 2001. As our diligent readers have pointed out, Greece joined in 1981. The author meant that Greece joined the European Monetary Union of the EU in 2001, when it adopted the euro.

“What is this Goldman Sachs and why has it caused us so much grief?” is a question they must be asking in even the most remote of Greek villages, as they are throughout much of this economically troubled world. The Greek financial scandal in which Goldman Sachs stands accused of selling dubious derivatives that concealed enormous government debt has sent the Greek economy and European markets into a tailspin. But that’s just part of a made-in-the-USA banking hustle that has haunted folks at home and abroad.

At the heart of the worldwide banking meltdown are those mysterious unregulated derivatives that Goldman and JPMorgan led the way in selling. But Greece’s case did not involve the usual questionable mortgages packaged into derivatives with credit default swaps backing them up, but rather expected revenue on airport fees and other potential sources of the cashed-strapped government’s future income.

As The New York Times headlined it: “Wall St. Helped to Mask Debt Fueling Europe’s Crisis.” The story described the scam succinctly: “As in the American subprime crisis and the implosion of American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere. ... Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.”

As a result of such shenanigans back in 2001, Greece was allowed to join the Economic and Monetary Union of the European Union while running up enormous debt that went undetected. Greece’s neighbors will now be forced to bail it out, much as U.S. taxpayers have done for banks as a result of the scams Goldman and other financial houses pulled off in this country. The common denominator is that the packagers of the collateralized debt securities, be they based on subprime mortgages or government airport fees, have no real interest in the integrity of the packages, for they will balance them out with credit default swaps that pay off when the assets prove toxic. And they will make their lucrative commissions coming and going, no matter what goes wrong. Even after all the trouble in Greece, Goldman President Gary D. Cohn was back in that country last November with a new derivative scam based on potential revenue from Greece’s health care system.

Advertisement

Just as it did with mortgages in the U.S., Goldman in effect bet against the collateralized Greek debt obligations. The basic issue is the same. The thing being sold need not be understood or correctly assessed as to its value. In his recent memoir, former Goldman Chairman Hank Paulson confesses that as late as August 2006 when as the newly appointed treasury secretary he briefed George W. Bush on the impending derivatives crisis he did not even know that the packages that Goldman and others had sold were based on mortgages. “I misread the cause, and the scale, of the coming disaster,” he admits, adding, “Notably absent from my presentation was any mention of problems in housing and mortgages.” In recalling when an obviously perplexed President Bush asked him “How did this happen?” Paulson says in his memoir: “It was a humbling question for someone from the financial sector to be asked—after all, we were the ones responsible.”

He got that right. The financial sector was and is responsible, but it still resists increased transparency and other necessary regulations over the derivatives that gamblers like Paulson themselves don’t understand. As Peter Eavis writes in The Wall Street Journal: “How many more crises will it take? The Greek emergency is a reminder of how little has been done to fix large, potentially unstable parts of the financial system. ... The banking lobby is resisting efforts to overhaul the $605 trillion market for derivatives that don’t trade on exchanges.”

The U.S. comptroller of the currency estimates that Goldman Sachs has a derivative “credit exposure” that is a whopping 858 percent of its risk-based capital and that JPMorgan Chase is in second place at 290 percent. That statement calls into question the savvy of President Obama, who crowed just last week in defense of Goldman CEO Lloyd Blankfein and Jamie Dimon, his old Chicago buddy who heads JPMorgan Chase, “I know both those guys; they are very savvy businessmen.” Tell it to the Greeks.

TAGS: bailout banks bush credit default swaps derivatives economy eu goldman sachs government greece greed jpmorgan chase meltdown money obama wall street

Related Entries

• April 16, 2010 Gays Get Hospital Visitation Rights
• April 16, 2010 A Supreme Court Choice We Can Believe In
• April 16, 2010 Journalism’s Parasites
• April 16, 2010 No Place to Fight a War
• April 15, 2010 Live Chat: Robert Scheer on the Financial Crisis

Email to a friend

Get truth delivered to
your inbox every week.

Next item: The GOP's Mixed Medicare Message