Goldman Sachs helped Greece hide its troubles
Helping the Greeks borrow, Goldman earned $300m in fees for just one transaction
As the euro faces another turbulent week with new tests of central bankers' resolve to protect the currency from Europe's growing debt problems, at least one US asset management firm is betting that the EU will not allow Greece or any other member state to default on its debts.
BlackRock, the world's biggest asset manager with 8,000 employees and $3.35 trillion under management, has increased its Greek bond holdings even after the credit agencies cut the country's credit grades in December.
Executives there say they cannot believe that, despite widespread public opposition to a bail-out, European politicians will allow Greece or any of the so-called PIIGS to default. "They won't allow a Lehman-type crisis," BlackRock's Michael Krautzberger told Bloomberg.
While investors remain troubled by the vague assurances of mutual support offered by European leaders in place of solid emergency provisions for bailing out individual member-states, it is widely believed officials are working to establish a lending facility underwritten by other members states according to their size.
But it is still unclear if Athens will accept further budget cuts as the price of winning back confidence. It is widely accepted the Greeks cooked their books to enter the EU and have behaved with limited regard for sensible book-keeping since.
According to the Financial Times, Athens is resisting any further measures until after EU officials and the International Monetary Fund inspect Greece's deficit-cutting plans next month. "It makes no sense to rush into additional measures until they are seen to be necessary," says a senior Greek official.
Anyone hoping to find the hand of Wall Street bankers in the Greek crisis have been granted their desire. The New York Times reports that one deal created by Goldman Sachs in the run-up to the Greek crisis helped obscure billions in the country's debt from officials in Brussels.
In November a team from Goldman Sachs traveled in Athens to show the Greeks complex financial instruments designed to push its health care bills far into the future, much in the same way that under-qualified housebuyers were offered adjustable rate or interest-only mortgages.
In exchange for upfront cash, Greece and possibly other members of the PIIGS group – Portugal, Italy, Ireland, Greece and Spain - offered government payments in the future. These liabilities often went unrecorded and were guaranteed against the rights to airport fees, lottery proceeds or other unconventional revenue instruments.
While Wall Steet is not directly accused of creating Europe's debt problems, its bankers certainly helped free-spending governments borrow beyond their means. The banks, meanwhile, earned hefty fees. For just one Greek transaction in 2001, Goldman earned $300 million in fees.
Says Gikas A Hardouvelis, an economist who co-wrote a recent report on Greece's accounting policies. "Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it." ·
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