Turns out that all those credit swaps Greece placed to help hide its debts now threaten its very existence. In case you’re not familiar with ‘em, credit default swaps are essentially bets that a company – or in this case – the entire nation of Greece – will default. If that happens, the traders who bought these swaps will make a killing.
Here’s why – buying credit swaps is like buying life insurance on your wealthy neighbor – you now have an incentive to bump him off.
In exchange for its help, Goldman was paid $300 million which, naturally, it ran through a newly created London based shell company called Titlos. Meanwhile, across town another London based company called the Markit Group created the little known iTraxx SovX Western Europe Index. It was based on Greek swaps as well as those of other PIGS and gave global traders the ability to bet on Greece’s pending failure.
Turns out that the Markit Group was backed by none other than Goldman Sachs, JP Morgan Chase and more than a dozen other banks all of whom were making similar bets against Greece.
So to recap…Goldman rakes in $300 million in fees by helping Greece do something that while not illegal, is certainly not honest. Then, the firm turns around and bets heavily on the country’s failure while standing to make billions if it goes belly up.
The bottom line is that not only has Wall Street become the world’s largest casino, but Goldman has house odds.
Don’t hold your breath that this will change any time soon…the guy named to head Greece’s banking system and provide oversight is George Provopoulos – a Goldman alumni. So to is Mario Draghi, who presently heads the Bank of Italy, Chairs the Financial Stability Board and who is the front runner to be the ECB’s new president starting next year. As for Goldman, evidently they can’t leave well enough alone and are busy denying rumors that the firm is helping pitch the sale of equity in the National Bank of Greece even as Greece struggles to fix its public financial woes.
About Keith Fitz-Gerald
