A financial instrument of Goldman Sachs - how Merkel rescues again the big banks with public money

ABC
Brussels - Under the terms of the Maastricht treaty, EU states are supposed to keep their government deficits below 3 percent of GDP, and total government debt is not to exceed 60 percent of GDP. Greece has never met its Maastricht obligations, but even Brussels could not ignore Athens’s profligate ways forever. So the Greeks needed a way to borrow money without having to issue bonds or engage in other conventional debt-financing measures that would put the debt on the national books.

So they called Goldman Sachs, the bank which is a giant vampire squid wrapped around the face of humanity. Goldman Sachs loves to help distressed governments borrow money - and then get the risk onto somebody else’s books. When the Greeks came looking for some spare change, Goldman created a special kind of foreign-exchange swap, called a cross-currency swap, that essentially allowed the Greek government to borrow money without being seen to do so. Goldman took about $1 billion out of the transaction. All the money will have to be paid back, but it did not show up on the books as sovereign debt. As the guys at Goldman Sachs are no fools, they sold those Greek swaps to a Greek bank. 

The European Union today has convened an emergency meeting to stave off the possibility that Greece will default on its sovereign debt. Something on the order of a national bailout is probable, and Greece may not be the end of it: Portugal, Italy, Ireland, and Spain all are in critical condition. In Europe, many of the banks are bigger than the countries in which they are based. They simply do not have the resources to address the crisis. 

It is already clear that Germany will emerge as the prime underwriter of any loans or debt guarantees to stop the markets savaging weak, peripheral members. It is precisely this case that opponents warned about when Germany gave up its DM, a move that a majority of people, in contrast to the political establihment, opposed at the time. As European central bankers move closer to bailing out Greece to stem market panic, the German tax payer may have additional regrets over their leaders (see photo).

It should be noted in this context that Germany, likely the biggest partner in the bailout for Greece, is also the country whose big banks would be among the most exposed to a default. German banks have about €31 billion of exposure in Greece. In addition, they have about €34 billion of exposure in Portugal, €141 billion in Ireland, and €175 billion in Spain, totalling €381 billion alone for these 4 countries. Some of these banks might have €50 billion of sovereign bonds, others might have up to €150 billion. In short: The big banks take the high interests of these risky papers, the tax payers finance their bailout.