Of course Goldman Sachs themselves cashed in on the deal immediately, and they probably used their client's money, so for them this has been a "successful trade". Will they ever stop, will they ever be kept accountable for what they do? I fear nothing will happen to them, again.
Let's assume the money is never repaid; at this point it seems likely that at least most of it never will be especially given the enormous haircut private lenders already took. How does that teach GS a lesson? The article even quotes a German noting that CCSs are legal (not that following the law has done much for bankers over the last 10 years). More importantly, what makes you think GS has any net exposure to Greece at this time? The swap was sold on. There is very little Greek debt left in private hands and I doubt that GS would be so foolish as to have any material exposure to it, whether in the form of CCS or anything else. And the buyer of the swap, supposedly a Greek bank per the article, is already a total zombie regardless of this particular asset. Whether Greece defaults on it or not will not be material to its fate.
34 billion, or 12%, seems to be private: http://graphics.wsj.com/greece-debt-timeline/
It seems safe to say that the impact of the Greek default, at least as far as direct financial/economic matters are concerned, is going to be very limited. As far as the private sector is concerned, the damage has already been done.
Argentina has 4 times larger population, though.
And yet there are no consequences to GS, they are not exposed at all.
1. The Greek government that engaged in this transaction was formed following a free and fair election. The CCS was not some dictator's scam.
2. GS didn't screw their customers. If they screwed anyone, it was the buyer of the CCS, a Greek bank, who certainly should have known better. The net result of this trade was that the Greeks screwed themselves; if you think of the trade as a chemical reaction, GS was just a catalyst.
3. The other EU countries also have democratically elected governments that chose to participate in bailing out Greece rather than cutting it loose in the first place. Those same governments also deliberately overlooked not only sketchy off-balance-sheet stuff like this but also rampant overspending and excessive on-balance-sheet indebtedness by EU members both large and small over a period of many years.
The only real sympathy I have is for the anti-EU minority across Europe who keep voting against these scams and keep getting stuck with the bill anyway. But that's the universal failure of democracy for you; it's not only the EU that suffers it.
My earnest hope is that everyone learns not to trust GS at their word, or at all. And then GS can't find buyers.
Hey, I can dream, right?
To be fair, Americans aren't the only ones that assume US laws apply everywhere. I had a friend in the British Army military police and he said a few times he had squaddies say something to the effect of "I know my rights, I'm pleading the Fifth",'as if the fifth amendment of the US constitution counts for much in UK military justice. That's the power of Holywood for you.
GS seem to have no problem screwing an entire population to make some profit. They don't care that the Greek or EU people ultimately need to pay for it.
No indeed! I'm convinced (and was taught in Technical University) that you always have responsibility yourself. Bad things [1] happen if you do anything someone asks of you / pays you for.
One thing which should be noted, though. There were two banks that didn't need a bailout back in '08-'09: Goldman Sachs and JP Morgan. They were forced to take the money by none other than Goldman's ex-CEO: Hank Paulson.
They claim that the potential AIG default had been hedged. So what? The AIG securities were hedges in the first place; apparently that doesn't eliminate counterparty risk! If the public had not stepped in, and GS was forced to call upon the next insufficiently-capitalized insurer in the chain, it is likely that party would also have proved insufficient. After enough layers of recursion, eventually GS would have been left holding a bag of some size, and its precious shareholders would have lost some of their money. And that would have been perfectly OK. You can't claim with a straight face that unemployment would be any higher today in that fairer, more just world.
If the Treasury Secretary wasn't a Goldman alumna, there's no way in hell that only the AIG securities held by GS would have been made whole in the way that they were. That is pure corruption, and the verdict of history will be very harsh.
[0] http://www.amazon.com/All-Devils-Are-Here-Financial/dp/15918...
Goldman had CDS against AIG imploding, had CDS-of-CDS against AIG's counterparties imploding, etc., etc. The solution to this hedging problem turns out to be the eigenvector of a CDS/exposure matrix, which is kind of fun.
Anyway... Goldman's bet was that the whole world would not implode. If there had been no bailout of anyone--you're right--everyone would've failed, including Goldman. In this scenario, there's no doubt in my mind unemployment would be higher today. But, given that someone was saved--anyone at all--Goldman turned out just fine. The cost of this hedge was ~$2.5 billion. For this, they were able to recover $10 billion. So, 75 cents on the dollar. More than they deserve!
The real crime has nothing to do with "needing to be bailed out"--this is just the story given to the public--it's the fact that Goldman may have had material nonpublic information about AIG. I think this article sums it up pretty well:
http://www.realclearmarkets.com/articles/2010/01/13/goldman_...
You've turned over another rock to find another example of GS malfeasance, so thanks for the info, but you're wrong about economies in the long term. The fact that GS was backstopped by the public in this case, and that their ownership of Treasury had so much to do with that (now I see why a knucklehead like Geithner was fast-tracked into his current position), will inspire not just GS to keep doing the same thing, but everyone else in the market to emulate them. Next time around, all the amounts will be bigger, maybe even big enough to break the nation, but since everyone at every department and agency will be a puppet of some financial firm, our reaction will be even more corrupt. All because Bush the Lesser didn't have the stones to tell Paulson to go pound sand when he started his high-pressure sales routine. The seeds of future disaster were planted during this pretend disaster.
I've heard all the whining about pension funds and whatnot, but surely they weren't all all-in on GS and its ilk? When the stupid investment banks fail, the big institutional funds might drop 10 or 20%, but life will go on. This is an example of the well-known fact that sometimes securities decrease in value. The services that GS provides, others could provide just as well. The damage that was done to good regulation and fiscal prudence in this nation, will never be fixed.
ps. thanks for resurrecting this thread!
If not GS then the IMF or some other organization would have been coerced to loan Greece money. Greece has been betting on the idea that the EU could not afford and would not allow them to implode.
When they got called on it they went into blackmail mode. Worse they set up a force failure by locking down bank transfers for the week. This means no one can do business, you cannot pay for what is being shipped and cannot place orders for more. Why would any EU company trust a Greek purchaser to pay now?
What must really happen is Greece must right size their government, pensions, employees, and military, to what they can afford and quit pretending its evil mean bankers that caused their plight. Oh they might have helped by lending money but Greece never would put forth serious effort to constrain spending.
The austerity the claim to suffer is applied the same way all politicians apply political pressure. By depriving those who already have no voice of essential services while making sure they themselves, their cronies, and supporters, don't suffer or as much.