GREEK CRISIS REVEALS HOW BANKS MAKE HUGE PROFITS BY HIDING DEBT

GREEK CRISIS REVEALS HOW BANKS MAKE HUGE PROFITS BY HIDING SOVEREIGN DEBT

Recent revelations about the role played by the supposedly prestigious U.S. bank Goldman Sachs in the Greek crisis showed some hints of financial chicanery, based on flaws in the regulatory process and opaque products which generate huge profits. The only purpose of such products is to deceive and conceal.

           According to American newspapers The New York Times and Risk Magazine, and the authoritative German magazine Der Spiegel, Goldman Sachs, has enabled the Greek State to disguise the reality of its debt by nefarious means. In 2002, on the advice of the bank, Athens has borrowed one billion euros by using a complex financial product that allowed them not to include this in their accounts. The bank had advised the Greek Government to have it disguised as a long-term debt.

           This device, then considered legal, allowed Athens not only to meet the requirements of the Stability Pact of the eurozone, but also to extend the deadlines for repayment of its debts. According to the Financial Times, the agreement between Goldman Sachs and Athens, this transaction must remain secret and only be reported in the accounts until the following year.

           "Goldman Sachs recommended that the Greek bank use derivatives to try to stagger the gaps", said Sophie van Straelen specialist Hedge Funds in Asterias, a company analysis on these hedge funds. She said the bank "has somewhat masked part of the Greek debt".

          "These devices are now highly prevalent. These transactions were not made to hide debt, but to postpone it until later," says Dusoulier Pierre Antoine, President France Saxo Bank. He said it is "normal to make the bride more beautiful before making a transaction.

           For the Greek Finance Minister George Papaconstantinou, the operation was "legal at the time, even if it no longer is today". But according to the spokesman of the party of German Christian Democrat Angela Merkel, "Goldman Sachs has violated the spirit of the Maastricht Treaty, although it is unclear whether the law violated." Beyond Goldman Sachs are listed the various financial products designed by investment banks to draw juicy commissions which allow states to beautify their finances.

            Of course the ratings agencies, Moody's Fitch and Standard & Poor, unsurprisingly, remained ignorant of the manoeuvre and continued to issue ratings based on flawed information, although that has never stopped them before.

MANY COUNTRIES USE THE TRICK?

           Many countries in Europe have used various subterfuges, which do not violate European regulations, to finance their debt. The banks offer such States a method of using state assets to secure government bonds, which can not recognize them in the national accounts. A bank encourages such countries to e.g. securitise its obligations to future airport taxes to be levied.