Congress Needs to Clip Goldman's Wings

The New York Times' front page exposé on the role that Goldman Sachs has played in the Greek tragedy unfolding in Europe right now raises a huge number of concerns both for the U.S. economy and the financial reform measures now in Congress.

To recap, Greece and a number of other European Union (EU) countries are dangerously in debt. EU rules say member countries cannot have budget deficits that exceed three percent of GDP. Greece's debt is closer to 12 percent. Other countries including Spain, Ireland, Italy and Portugal are also in trouble. These countries are "too big to fail." A default by any one of them would rock the global markets, putting an end to the hopeful signs of an EU recovery and potentially leading to a "double dip" recession here in the United States.

Greece and perhaps the other EU nations have been hiding the extent of the debt for years. This week, it was revealed that they have been able to do this with the aid of major U.S. players like Goldman Sachs. The German magazine Der Spiegel broke the story that Greece did a billion-dollar currency swap with Goldman Sachs in 2002 that did not show up on the nation's books as debt.

Deals of the Gods?

Yesterday, the Times reported that there was a series of Goldman Greece deals that those chuckleheads at Goldman named after figures in Greek mythology. One of the deals was called Aeolos, after the god of the winds.

"Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country's airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics," reports the Times.

Off Book Deals

It walks like a loan, talks like a loan, but because it was actually a complex derivative deal, it was secret, bilateral, and off-book. No one knows how many of these deals there are underpinning the EU's debt numbers or the U.S. debt for that matter.

What the Times story missed is that right now neither the House financial reform bill nor the Senate proposal cover these types of currency swaps. While both bills attempt to to bring some degree of transparency to derivatives trades, they do not cover currency swaps. Why not? Well, this is a bit odd: the Federal Reserve does not want these deals covered.

While there is no evidence that the Federal Reserve is engaging in these types of currency swaps with banks from other nations, their objections to having these deals be made on open, transparent exchanges should ring some alarm bells. The U.S. also has substantial debt. Why tempt fate or creative accountants to borrow off book?

Flying Too High

Like Icarus, Goldman and other big banks, like JP Morgan, who have engaged in these massive deals, are flying a little to close to the sun. As concern about the Greek situation mounts, and as the worrisome implications for the health and well-being of the U.S. economy are become clearer, the big banks are doing their best to illustrate why major financial reform is needed and why no derivative trading should be off book.

The Senate needs to clip Goldman's wings and make sure that all derivatives are traded on an open exchange to provide the maximum level of transparency for the U.S. and the world.

Mary Bottari

Mary Bottari is a reporter for the Center for Media and Democracy (CMD). She helped launch CMD's award-winning ALEC Exposed investigation and is a two-time recipient of the Sidney Prize for public interest journalism from the Sidney Hillman Foundation.


Funny how they treat such important deals as a game, naming them after all sort of mythological figures. It all sounds so simple although it's really not!

I would say its not only Goldman Sachs, but all those type of financial firms whereever they might be should be investigated all over the world and if found guilty should be punished severely by taking them over by the concerning states/countries. Its because of their shady dealings that there is financial and job crisis the world over even if we forget Greece which is in turmoil right now!

the current situation greece finds itself is very precarious for other members of the european union. it gives the critics of eu's one currency policy better arguments that there is no wisdom in holding to a currency that is prone to financial meltdowns of other countries.

Joe, you are not completely right. As an Italian I could say that my country has got a better economy thanks to the euro! Without the euro we won't be able to compete with the dollar!

I agree to you. Also the Greece-discussion should be handled with care. Although the facts that Greece is in a shortage of money, there are some matters that confuse me. I come from Germany and we can go into retirement with 65 and the Greeks are demonstrating because the government plans to change the age of entry up to 60 with more retirement pay than we will get!? Strange

Goldman Sachs thinks they are equivalent to Uncle Sam, why do they need to care for the average Joe, or how Joe thinks about them?I suppose those who will get the fat bonus from GS or other banks will laugh at average Joe for their generous and stupid bailouts. Cheers GS for being saved while the average Joe are sinking in the great US of Titanic!

Paul Volcker, the legend from the 80s who tamed the inflation had several good ideas about how to change the regulations so that the financial crisis does not repeat itself. Unfortunately he was not listened to. And in my opinion, there is only a question of time when the crisis will repeat itself, probably only worse, because the countries are much more indebted than they were at the beginning of the recession.

Well, there was so much talk months ago about the Greece crisis and probably a lot of people made bets on it getting better and then the EU something very smart in a long time - got together a huge aid package and even more for similar cases and the future. The result could be seen a couple of months later as a lot of big hedge funds reported severe losses. Shows that not always the speculators win, especially against the house, which EU is regarding the Greece and Euro. And now, of course, nobody talks about the Greece anymore.

"Greece did a billion-dollar currency swap with Goldman Sachs in 2002 that did not show up on the nation's books as debt." What a surprise, G.S crashed and burned, then Greece tumbles. I wonder what other country's dirty washing will be revealed in the next few months.