Goldman Sachs: A broad participation in the cutting of the Greek debt...

[greekemmy]

From Wikipedia:

Goldman Sachs: Involvement in the European sovereign debt crisis

Goldman is being criticized for its involvement in the 2010 European sovereign debt crisis. Goldman Sachs is reported to have systematically helped the Greek government mask the true facts concerning its national debt between the years 1998 and 2009.[72] In September 2009, Goldman Sachs, among others, created a special credit default swap (CDS) index to cover of high risk of Greece's national debt.[73] The interest-rates of Greek national bonds have soared to a very high level, leading the Greek economy very close to bankruptcy in March and May 2010 and again in June 2011.[74] Lucas Papademos, Greece's new prime minister, ran the Central Bank of Greece at the time of the controversial derivates deals with Goldman Sachs that enabled Greece to hide the size of its debt.[75] Petros Christodoulou, head of Greece's debt management agency began his career at Goldman Sachs.[75] Mario Monti, Italy's new prime minister and finance minister, who heads the new government that took over after Berlusconi's resignation, is an international adviser to Goldman Sachs.[75] So is Otmar Issing, former board member of the Bundesbank and the Executive Board of the European Bank.[75] Mario Draghi, the new head of the European Central Bank, is the former managing director of Goldman Sachs International.[75] Antonio Borges, formerly head of the IMF's European Department is a former vice chairman of Goldman Sachs International.[75] Peter Sutherland, former Attorney General of Ireland is a non-executive director of Goldman Sachs International. Karel van Miert, former EU Competition Commissioner is an ex-international adviser to Goldman Sachs.[75] These ties between Goldman Sachs and European leaders is an ongoing source of controversy.[75]

http://en.wikipedia.org/wiki/Goldman_sachs

How is it then that their reputation and authority in financial circles has remained untarnished? they only helped a nation lose its financial sovereignty. How is it that their opinions are published and given credit as the article below shows. The world never seizes to amaze me.


Goldman Sachs: A broad participation in the cutting of the Greek debt is necessary

14 January 2012 / 03:01:13  GRReporter

Broad participation of private creditors in the cutting of the Greek debt (PSI) is essential, stated in a report the investment bank Goldman Sachs. According to the bank, the fact that ownership of the bonds is dispersed among many investors and along with this the need to achieve also broad participation, so that the whole procedure makes sense, become key issues.

Citing data from the Bank of Greece, the European Banking Authority and the European Central Bank, Goldman Sachs believes that out of the debt amounting to 360 billion euro at the end of 2011, approximately 210 billion euro were in the hands of private creditors. Out of this 210 billion euro, nearly 85 billion euro is owned by Greek banks, mutual funds and others of the kind, and 55 billion euro is held by banks from the eurozone member states.

If we assume that lenders only from Greece and the eurozone participate in the PSI, then a debt of around 140 billion euro will be restructured. Moreover, as noted in the report, for a part of the debt that was written off in Greece, the government will have to resort to a new loan to recapitalize the local banks. Thus, from a debt cut of 50%, the actual benefit may ultimately not exceed 30-35 billion euro (Goldman Sachs stresses that its estimates may undergo significant change, depending on how the losses of local banks will be reimbursed).

The actual financial benefit to the viability of the Greek debt comes from the reduction of the debt held abroad. For example, if the European Central Bank and the rest of the private sector, except for the Greek banks and the banks from the eurozone, participated fully in cutting the debt, then the actual benefit to Greece could reach 100 billion euro.

But even this 100 billion euro might not be sufficient to stabilize the Greek debt, says Goldman Sachs. A further reduction of the interest rates on loans outside the private sector might be necessary. And of course, a smaller cut of the debt would further limit the effectiveness of the restructuring procedure.

The structure of PSI does not encourage broad participation

Given that a reduction of 50% of the nominal value of the debt is planned it becomes clear that it would be difficult for the private sector to be enthusiastic to participate. This is true because a slightly lower interest rate and a prolongation of the repayment term could increase its losses to 70% -75%.

According to the report of Goldman Sachs, the structure of PSI could be different by placing greater emphasis on the reduced rate, instead of the reduced face value, which would provide more opportunities for an increase and therefore greater incentives for the participation of private creditors. It seems, however, that currently there nothing like this in the plans of the politicians. Thus creditors will participate only if they consider that non-participation will cost them a lot, or if they are forced to do so, involuntary.

PSI creates a «precedent»

The threat of an uncontrolled bankruptcy, which will eventually minimise the opportunities to restore medium-term bonds, but also the great pressure on the Greek banking system could be serious enough reasons for the participation of the private creditors in the programme. In case, however, that despite the threat of uncontrolled bankruptcy participation is low and restructuring becomes forced, then the manner in which creditors are treated will create a precedent that will affect the premiums and the microstructure of many European bond markets.

Some of the critical questions are:

1. How will the bonds held by the European Central Bank be treated? If they are excluded from the compulsory restructuring or if they are placed under more favorable conditions, this could arise disputes with private creditors.

2. How extreme will the application of Greek law be, in order to achieve specific results? In various publications, a retroactive application of collective action clauses (collective action clauses - CACs) is discussed, which will allow the majority of bondholders to make the exchange mandatory also for other holders of Greek debt. Something like that would create even greater fragmentation of the bond market, between the securities issued by the Greek State, those that are under the jurisdiction of the United Kingdom and those issued under various legal frameworks. And investors would turn to the security provided by each category of bonds.

3. Would the CDS insurances against bankruptcy be activated? This is by no means a desired result. Nevertheless, the efforts to completely avoid their activation in the event of a less voluntary restructuring would destroy the essence of insurance against the risk of a state bankruptcy. And without reliable insurance, the next best choice for protection would be the reduction of the positions on the bond markets.

http://www.grreporter.info/en/goldman_sachs_broad_participation_cutting_greek_debt_necessary/5720

[Jarreth]

There are gaps in the story that I've tried to fill, here

[greekemmy]

I keep looking for responses of Greek politicians over the issue of "masking" Greek debt, especially the PM at the time Kostas Simitis and they are not many, here is one:


"Ex-PM Simitis to Sarkozy: “Greece Has Not Cheated!” To Enter The Euro Zone

Posted by keeptalkinggreece in Economy 16/11/2011

Former Greek Prime Minister Costas Simitis wrote an article to French newspaper Le Monde, directly answering Nicholas Sarkozy claims that  ”Greece falsified statistical data in order to join the Euro Zone.” Simitis also indirectly gives an answer to Le Monde article claiming Goldman Sachs was the major Greek debt falsifier.

Costas Simitis: Greece Has Not Cheated!

“It is important to clarify the facts relating to the entry of Greece into the European Economic and Monetary Union (EMU), and thus enable a better understanding of the “Greek problem” at a critical time when relations of trust between Greece and the European Union are disrupted. In an interview broadcast on TF1, Nicolas Sarkozy, the French head of state, described as “false” statistical data provided by Greece on its accession to EMU. He even said that the admission of countries in the euro area was a “mistake” committed by the governments of the day, he was not a member.

Recall the facts: the membership criteria are established in the Maastricht Treaty and the related budget deficit (less than 3% of GDP), inflation, interest rates and the stabilization of exchange rates. Their achievement is certified by the European Commission and European Central Bank (ECB), while the admission decision is made by the finance ministers in the Council for Economic and Financial Affairs.

Greece joined the euro area based on its performance evaluated in 1999. In 2004, following elections, the new government led by the New Democracy party has made a retroactive change of the rules applied for the recording of military expenditure: the latter, instead of being recorded on the date of delivery equipment – as was the rule in European countries – have been transferred to the order date. So large amounts that would be part of the budgets after 2004 were recorded as expenses in the previous period, which increased deficits in this period.

It has repeatedly denounced the treachery motivated by considerations of petty politics. It is unfortunate that Mr Sarkozy took up this idea on his own, unless it questions the integrity of the Commission and the ECB. He also failed to notice a telling detail of bad faith marking this discussion: the fiscal deficit of France when it joined in 1997 (estimated at 3.3% of GDP) was higher than of Greece (3.1%). It is hoped that the obsession with statistics will eventually give way to a more mature, focused on the conditions necessary to ensure the coexistence of countries with uneven levels of development within the monetary union. It seems to be the only way to ensure the continuation of the European project.”[/i]"

 Simitis’ article has been translated via Google automatic translation. Read Full Article in French HERE

http://www.lemonde.fr/idees/article/2011/11/15/la-grece-n-a-pas-triche_1603935_3232.html

http://www.keeptalkinggreece.com/2011/11/16/ex-pm-simitis-to-sarkozy-greece-has-not-cheated-to-enter-theeuro-zone/

[Jarreth]

Sarkozy or Simitris' declarations have little value, for obvious reasons, in telling us anything credible as to whether Greece cheated or not, and what conclusions to make of it. The best source are the Eurostat audits, and it is clear that there has been a pattern of deceptive irregularities in Greece's national accounts reporting. It matters because Goldman Sachs has used the pretense of external validation of Greece's books as evidence there were doing nothing illegal. False. Their other line of defense is that their deal with Greece was commonplace. Also false, as I recently discovered (read my blog).

The EU authorities should have brought the matter before a court of justice, but they haven't. Wrong. Recently, Goldman was one of four banks to have been awarded the underwriting of EFSF bonds (Eurobonds that don't speak their names). When governments fail to their job, the parliament should step in. They certainly have the authority to do so, and they did, seemingly, in the UK (Michael Fallon) and the EU (Sharon Bowles). But they only scratched the surface of the problem (no witnesses, no evidence, just talk) and did not follow up. A mockery of due process.

Some people are getting away with financial fraud in the aftermath of the financial crisis. Very wrong.

[greekemmy]

Goldman Sachs and the destruction of Greece

-a Dutch Documentary (most interviews in English), 50 minutes-

http://www.thepressproject.gr/external.php?link=http://bit.ly/yu0MpE&id=12714


Will it be a deep red Monday? Around February 13 expected the Greek Ministry of Finance has a definite debt deal. But now it seems inevitable bankruptcy of Greece. In the past ten years shows the U.S. investment bank Goldman Sachs, the Greek government to have made risky financial structures that the debt of the country showed lower-than she really was. With Goldman Sachs helped Greece to rise above his stand to live and deeper into debt to stabbing. The Goldman Sachs delivered hundreds of millions, and it was the beginning of the structural undermine the euro.

In this episode the views of:

- William D. Cohan, author of Money and Power: How Goldman Sachs came to rule the world. "Cohan is a former banker who now to investigative journalist and author has developed. His book describes the history of Goldman Sachs from the inside.

- Nomi Prins, former partner and managing director at Goldman Sachs. Left Goldman Sachs in 2002 because they disagreed with the rate the investment bank struck after the IPO in 1999.Sindsdien active in the progressive think tank Demos.

- Nick Dunbar as a financial journalist working for Bloomberg. In 2003 wrote the first article about the controversial debt swap of 2001. Author of the book 'The Devil's Derivatives'

- Yanis Varoufakis, Greek economist. Protested in 2005 against the deal at Eurostat.

- Christoforos Sardelis, former head of the agency of the Greek state debt. Keeps track of high and low insisted that the deals had no adverse effect on debt developments.

- Petros Christodoulou, Sardelis's successor as head of the Greek debt management agency. Began as a trader at Goldman Sachs and was connected to the Greek Central Bank.