6 ms·

Didn't Greece falsify data for years? That would explain the AAA ratings.

by Scea91 9y ago

cafard 9y ago
Were the banks truly deceived, or just hoping that they could cash in and be bailed out?
- paganel 9y ago
  Probably both. I still remember a full-time ad in The Economist around 2006-2007 by a German Landesbank, where they were promoting themselves as the coolest of things when it came to banking and managing clients' money. Not 2 years passed and that same Landesbank was by then in very serious trouble because it had invested heavily in US mortgage derivates, I think there was also talk of its general manager doing prison time. He probably didn't.
  - jandrese 9y ago
    AFAIK the only guy who did jail time for crashing the world's economy and wiping out retirement savings of millions of people was a guy who copied some utility code to dropbox when he quit Goldman Sachs.
    - FabHK 9y ago
      Sergey Aleynikov spent a year in prison for copying some code over. Fabrice Tourre (self-proclaimed "Fabulous Fab", a nickname that ought to be mine! :) was indicted by the SEC for his role in selling dodgy mortgage backed CDOs. https://en.wikipedia.org/wiki/Sergey_Aleynikov https://en.wikipedia.org/wiki/Sergey_Aleynikov https://en.wikipedia.org/wiki/Goldman_Sachs#Abacus_mortgage-backed_CDOs_.282010.29 https://en.wikipedia.org/wiki/Goldman_Sachs#Abacus_mortgage-... > "The whole building is about to collapse anytime now," Tourre wrote to his girlfriend in 2007, the SEC charged. "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!" https://www.usatoday.com/story/money/business/2013/08/01/goldman-trader-fabrice-tourre-reaction/2609717/ https://www.usatoday.com/story/money/business/2013/08/01/gol...
- EastLondonCoder 9y ago
  Yanis describes in The Weak Suffer What They Must? that the situation was very simliar to the subprime crisis in the states. Giving a lot of risky loans that then could be split and re-packaged.
- FabHK 9y ago
  1. The incentives were just so aligned that I think a lot of people might have had their private misgivings, but held their nose and went ahead. Apart from the AAA rating, government bonds also had a very low risk rating in the Basel accords (Basel I, and Basel II that just came into effect during the global financial crisis 2008). Basically, the Basel accords specify a minimum capital adequacy ratio, that is a certain minimum capital level to support given risk weighted assets. (Capital in the bank context basically refers to equity - i.e. funding that can absorb losses without the bank going bankrupt due to debt obligations they cannot fulfil.) Now, the risk weight for government bonds is zero! (in Basel II, they had to be AA or AAA, and it gets complicated quick, but basically...) So you can load up on them without having to increase your equity cushion. 2. This allowed banks to increase their Return on Equity, which influenced bankers' pay. 3. Furthermore, I think they were all implicitly banking on either bailouts (directed at individual banks) or a version of "The EU would never allow a member government to go bust". So, I think everyone was in it to an extent (while formally "correct" and "safe"), cashing out merrily, and hoping for the best. Another great book on this, by the way, is The Bankers' New Clothes: What's Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig. (Funny side note: I searched "bankers new clothes" on Amazon to get the author names right, and got a page with dress shirts and briefcases.... :-)
  - occamrazor 9y ago
    In Basel 2 indeed government bonds need indeed to have a rating of AA (AA- IIRC) or higher to be considered completely risk-free. However Greece never reached an AA rating, it was A in 2008.
arethuza 9y ago
They did get "help" from Golman Sachs to come up with numbers that allowed them to enter the Euro in the first place: http://www.independent.co.uk/news/world/europe/greek-debt-crisis-goldman-sachs-could-be-sued-for-helping-country-hide-debts-when-it-joined-euro-10381926.html http://www.independent.co.uk/news/world/europe/greek-debt-cr...
ravingraven 9y ago
It borders on the impossible to fake data on this scale and in such amounts. The deficit forecast for 2009 (the year the crisis started) was 3.7 which got revised to 12.5 percent at the end of that year. Any sufficiently large institution or cooperation that wanted to have access to the real data, could have done so with minimal effort, you can't hide a 10% budget gap. The false data Greece reported to get into the Eurozone was an open secret, I vividly remember it being talked about extensively in Greek cafes after 2001.
- iamacynic 9y ago
  > It borders on the impossible to fake data on this scale and in such amounts the more cynical among us ahem would probably say that it borders on the impossible to accurately report data on this scale and in such amounts, regardless of intention.
  - Tharkun 9y ago
    The cynics would be right. I've seen financial instutions report data using poorly defined regexes on bank statements. Regexes which could easily yield false positives and negatives.
- geezerjay 9y ago
  > It borders on the impossible to fake data on this scale and in such amounts. It's quite far from being impossible. Actually, it's a widely known fact that a string of greek governments systematically falsified Greece's books, and it actually culminated with Greece going as far as hiring Goldman Sachs to hide their double-digit deficits. > The false data Greece reported to get into the Eurozone was an open secret, That's the old attempt at diffusion of responsibility that often pops up. It's the same old tired argument: once the fact that Greece did in fact cooked its books and falsified their accounting for years, there comes the argument that they still have no responsibility for their own actions because somehow.... others might have known they were falsifying their records? It's a lame excuse, and it never sticks.
  - 9y ago
drzaiusapelord 9y ago
Greece has been cooking the books for a long time, even their entrance into the EU was fradulant. Greece is the blame here via its decades of fraud that finally caught up with it. As a Greek-American with an interest in Greece being successful I think all the finger pointing at Wall Street or Germany is asinine. Greece is horribly corrupt and tax dodging is like its national sport. Its like someone turned Chicago into a country. All of its out of control spending, unsustainable union perks, and unrealistic pensions finally caught up with it, just like its happening in Chicago right now. The difference is Chicago and Illinois can raise taxes and make appropriate cuts over the long term, but Greece won't unless strong-armed by Germany and others. Ultimately, a shared currency with nations with such disparate levels of income and corruption just doesn't work out in real life like it does on paper. Arguably, Greece could have restructured its debt and engaged in inflation with its own currency and handled this much better, but that's not an option when you're wed to the Euro. Personally, I like the idea of the EU, but a shared currency is extremely questionable. Credit ratings are just that, ratings, not investment advice and like all ratings should be understood to be of limited value. A nation state can hide quite a bit from organizations like Moody's and every election changes leadership, so there's no static "Greece." Instead its a handful of parties fighting for power with different agendas and goals and with differing levels of corruption and incompetence with a baseline being pretty bad to begin with. Heck even senior Moody's staff were warning investors about Greece and its dealings with Goldman[1]. You'd have to be a little thick to think that AAA rating meant no-risk. All investment involves risk. I suspect the larger economies always saw Greece as their 'little brother' and countries like Germany had a sort of "Well, if we give them money, they'll build industry and catch up to us eventually," instead Greece blew it on pensions for people retiring at 50, questionable social programs, and other unsustainable and unwise spending. I sense a high level of paternalism in general from other Europeans especially when I'm perceived as a native Greek when in Europe. Sadly, I think everyone would be better off if we were rougher with Greece and instead of seeing it as our tourist-friendly 'little brother,' but instead as our dishonest and thieving neighbor. I hope this current crisis has changed perception and paternalist attitudes in Europe and made everyone think about the limitations a shared currency creates. [1] http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all&_r=0 http://www.nytimes.com/2010/02/14/business/global/14debt.htm... In 2008, Goldman helped the bank put the swap into a legal entity called Titlos. But the bank retained the bonds that Titlos issued, according to Dealogic, a financial research firm, for use as collateral to borrow even more from the European Central Bank. Edward Manchester, a senior vice president at the Moody’s credit rating agency, said the deal would ultimately be a money-loser for Greece because of its long-term payment obligations. Referring to the Titlos swap with the government of Greece, he said: “This swap is always going to be unprofitable for the Greek government.”
HenryBemis 9y ago
It's wasn't exactly "fake data". It's just that Greece decided to use its own custom-made "IFRS" that were conveniently misrepresenting debt (among others) to make "this year look good". Varoufakis's tactic was "catenaccio" (for the football/soccer aficionados). What Italian football/soccer teams established in the 80s and Barcelona perfected in the 00's, meaning keep the ball, pass it around with no purpose to attack/defend, just delay till kingdom come. Because since we will never "win" (maintain an inefficient and ineffective economy), we will also never "lose" (progress, liberate professions, promote state transformation, reduce of corruption and cronyism). And this is why Greece is suffering this brain-drain while at the same time the economy is struggling. Don Quixote was an honorable figure. Varoufakis, Tsipras and the rest of the happy campers in government are just a useless gang feeding of a dying country.
- dnh44 9y ago
  Catenaccio is totally different to Barcelona's attacking possession based game also referred to as "tiki-taka" or "total football," popularised by Cruyff. This style is actually the counter to Catenaccio. https://en.wikipedia.org/wiki/Johan_Cruyff https://en.wikipedia.org/wiki/Johan_Cruyff Greece won the euros in 2004 as heavy underdogs playing heavily defensive, fast counter-attacking, catenaccio style football. It's not fun to watch.
- lakis2 9y ago
  > Varoufakis's tactic was "catenaccio" (for the football/soccer aficionados). You are Greek right? That kind of comparison of politics to soccer is something that many Greeks are accustomed to, hence my assertion. Btw Varoufakis clearly states that this method was employed by the rest of Europe, not him. Feel free to call him a lier, but this directly contradicts his statement and so some proof is needed to substantiate your statement and provide more credibility to it than his.
atmosx 9y ago
So did Italy and possibly France. It was a very well known, old trick. Of course it's Greece's fault, but everybody else (Germany, France, Italy, etc.) were on the same page. Greece didn't cheat anyone, it just went along with what it was proposed to in order to get in the common currency. Accusing Greeks of false statistics and what-not was part of political propaganda in Greece and abroad more than anything else.
- geezerjay 9y ago
  > Greece didn't cheat anyone, So falsifying their accounting to hide double-digit deficits as well as tehir massive debt is not cheating anymore?
occamrazor 9y ago
In its entire history Greece never had an AAA rating. The highest was A+/A1 in 2004. In 2008/09 it was at A/A-.

Didn't Greece falsify data for years? That would explain the AAA ratings.

by Scea91 9y ago

Didn't Greece falsify data for years? That would explain the AAA ratings.

cafard 9y ago

Were the banks truly deceived, or just hoping that they could cash in and be bailed out?

paganel 9y ago
Probably both. I still remember a full-time ad in The Economist around 2006-2007 by a German Landesbank, where they were promoting themselves as the coolest of things when it came to banking and managing clients' money. Not 2 years passed and that same Landesbank was by then in very serious trouble because it had invested heavily in US mortgage derivates, I think there was also talk of its general manager doing prison time. He probably didn't.
- jandrese 9y ago
  AFAIK the only guy who did jail time for crashing the world's economy and wiping out retirement savings of millions of people was a guy who copied some utility code to dropbox when he quit Goldman Sachs.
  - FabHK 9y ago
    Sergey Aleynikov spent a year in prison for copying some code over. Fabrice Tourre (self-proclaimed "Fabulous Fab", a nickname that ought to be mine! :) was indicted by the SEC for his role in selling dodgy mortgage backed CDOs. https://en.wikipedia.org/wiki/Sergey_Aleynikov https://en.wikipedia.org/wiki/Sergey_Aleynikov https://en.wikipedia.org/wiki/Goldman_Sachs#Abacus_mortgage-backed_CDOs_.282010.29 https://en.wikipedia.org/wiki/Goldman_Sachs#Abacus_mortgage-... > "The whole building is about to collapse anytime now," Tourre wrote to his girlfriend in 2007, the SEC charged. "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!" https://www.usatoday.com/story/money/business/2013/08/01/goldman-trader-fabrice-tourre-reaction/2609717/ https://www.usatoday.com/story/money/business/2013/08/01/gol...
EastLondonCoder 9y ago
Yanis describes in The Weak Suffer What They Must? that the situation was very simliar to the subprime crisis in the states. Giving a lot of risky loans that then could be split and re-packaged.
FabHK 9y ago
1. The incentives were just so aligned that I think a lot of people might have had their private misgivings, but held their nose and went ahead. Apart from the AAA rating, government bonds also had a very low risk rating in the Basel accords (Basel I, and Basel II that just came into effect during the global financial crisis 2008). Basically, the Basel accords specify a minimum capital adequacy ratio, that is a certain minimum capital level to support given risk weighted assets. (Capital in the bank context basically refers to equity - i.e. funding that can absorb losses without the bank going bankrupt due to debt obligations they cannot fulfil.) Now, the risk weight for government bonds is zero! (in Basel II, they had to be AA or AAA, and it gets complicated quick, but basically...) So you can load up on them without having to increase your equity cushion. 2. This allowed banks to increase their Return on Equity, which influenced bankers' pay. 3. Furthermore, I think they were all implicitly banking on either bailouts (directed at individual banks) or a version of "The EU would never allow a member government to go bust". So, I think everyone was in it to an extent (while formally "correct" and "safe"), cashing out merrily, and hoping for the best. Another great book on this, by the way, is The Bankers' New Clothes: What's Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig. (Funny side note: I searched "bankers new clothes" on Amazon to get the author names right, and got a page with dress shirts and briefcases.... :-)
- occamrazor 9y ago
  In Basel 2 indeed government bonds need indeed to have a rating of AA (AA- IIRC) or higher to be considered completely risk-free. However Greece never reached an AA rating, it was A in 2008.

arethuza 9y ago

They did get "help" from Golman Sachs to come up with numbers that allowed them to enter the Euro in the first place: http://www.independent.co.uk/news/world/europe/greek-debt-crisis-goldman-sachs-could-be-sued-for-helping-country-hide-debts-when-it-joined-euro-10381926.html http://www.independent.co.uk/news/world/europe/greek-debt-cr...

ravingraven 9y ago

It borders on the impossible to fake data on this scale and in such amounts. The deficit forecast for 2009 (the year the crisis started) was 3.7 which got revised to 12.5 percent at the end of that year. Any sufficiently large institution or cooperation that wanted to have access to the real data, could have done so with minimal effort, you can't hide a 10% budget gap. The false data Greece reported to get into the Eurozone was an open secret, I vividly remember it being talked about extensively in Greek cafes after 2001.

iamacynic 9y ago
> It borders on the impossible to fake data on this scale and in such amounts the more cynical among us ahem would probably say that it borders on the impossible to accurately report data on this scale and in such amounts, regardless of intention.
- Tharkun 9y ago
  The cynics would be right. I've seen financial instutions report data using poorly defined regexes on bank statements. Regexes which could easily yield false positives and negatives.
geezerjay 9y ago
> It borders on the impossible to fake data on this scale and in such amounts. It's quite far from being impossible. Actually, it's a widely known fact that a string of greek governments systematically falsified Greece's books, and it actually culminated with Greece going as far as hiring Goldman Sachs to hide their double-digit deficits. > The false data Greece reported to get into the Eurozone was an open secret, That's the old attempt at diffusion of responsibility that often pops up. It's the same old tired argument: once the fact that Greece did in fact cooked its books and falsified their accounting for years, there comes the argument that they still have no responsibility for their own actions because somehow.... others might have known they were falsifying their records? It's a lame excuse, and it never sticks.
- 9y ago

drzaiusapelord 9y ago

Greece has been cooking the books for a long time, even their entrance into the EU was fradulant. Greece is the blame here via its decades of fraud that finally caught up with it. As a Greek-American with an interest in Greece being successful I think all the finger pointing at Wall Street or Germany is asinine. Greece is horribly corrupt and tax dodging is like its national sport. Its like someone turned Chicago into a country. All of its out of control spending, unsustainable union perks, and unrealistic pensions finally caught up with it, just like its happening in Chicago right now. The difference is Chicago and Illinois can raise taxes and make appropriate cuts over the long term, but Greece won't unless strong-armed by Germany and others. Ultimately, a shared currency with nations with such disparate levels of income and corruption just doesn't work out in real life like it does on paper. Arguably, Greece could have restructured its debt and engaged in inflation with its own currency and handled this much better, but that's not an option when you're wed to the Euro. Personally, I like the idea of the EU, but a shared currency is extremely questionable. Credit ratings are just that, ratings, not investment advice and like all ratings should be understood to be of limited value. A nation state can hide quite a bit from organizations like Moody's and every election changes leadership, so there's no static "Greece." Instead its a handful of parties fighting for power with different agendas and goals and with differing levels of corruption and incompetence with a baseline being pretty bad to begin with. Heck even senior Moody's staff were warning investors about Greece and its dealings with Goldman[1]. You'd have to be a little thick to think that AAA rating meant no-risk. All investment involves risk. I suspect the larger economies always saw Greece as their 'little brother' and countries like Germany had a sort of "Well, if we give them money, they'll build industry and catch up to us eventually," instead Greece blew it on pensions for people retiring at 50, questionable social programs, and other unsustainable and unwise spending. I sense a high level of paternalism in general from other Europeans especially when I'm perceived as a native Greek when in Europe. Sadly, I think everyone would be better off if we were rougher with Greece and instead of seeing it as our tourist-friendly 'little brother,' but instead as our dishonest and thieving neighbor. I hope this current crisis has changed perception and paternalist attitudes in Europe and made everyone think about the limitations a shared currency creates. [1] http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all&_r=0 http://www.nytimes.com/2010/02/14/business/global/14debt.htm... In 2008, Goldman helped the bank put the swap into a legal entity called Titlos. But the bank retained the bonds that Titlos issued, according to Dealogic, a financial research firm, for use as collateral to borrow even more from the European Central Bank. Edward Manchester, a senior vice president at the Moody’s credit rating agency, said the deal would ultimately be a money-loser for Greece because of its long-term payment obligations. Referring to the Titlos swap with the government of Greece, he said: “This swap is always going to be unprofitable for the Greek government.”

HenryBemis 9y ago

It's wasn't exactly "fake data". It's just that Greece decided to use its own custom-made "IFRS" that were conveniently misrepresenting debt (among others) to make "this year look good". Varoufakis's tactic was "catenaccio" (for the football/soccer aficionados). What Italian football/soccer teams established in the 80s and Barcelona perfected in the 00's, meaning keep the ball, pass it around with no purpose to attack/defend, just delay till kingdom come. Because since we will never "win" (maintain an inefficient and ineffective economy), we will also never "lose" (progress, liberate professions, promote state transformation, reduce of corruption and cronyism). And this is why Greece is suffering this brain-drain while at the same time the economy is struggling. Don Quixote was an honorable figure. Varoufakis, Tsipras and the rest of the happy campers in government are just a useless gang feeding of a dying country.

dnh44 9y ago
Catenaccio is totally different to Barcelona's attacking possession based game also referred to as "tiki-taka" or "total football," popularised by Cruyff. This style is actually the counter to Catenaccio. https://en.wikipedia.org/wiki/Johan_Cruyff https://en.wikipedia.org/wiki/Johan_Cruyff Greece won the euros in 2004 as heavy underdogs playing heavily defensive, fast counter-attacking, catenaccio style football. It's not fun to watch.
lakis2 9y ago
> Varoufakis's tactic was "catenaccio" (for the football/soccer aficionados). You are Greek right? That kind of comparison of politics to soccer is something that many Greeks are accustomed to, hence my assertion. Btw Varoufakis clearly states that this method was employed by the rest of Europe, not him. Feel free to call him a lier, but this directly contradicts his statement and so some proof is needed to substantiate your statement and provide more credibility to it than his.

atmosx 9y ago

So did Italy and possibly France. It was a very well known, old trick. Of course it's Greece's fault, but everybody else (Germany, France, Italy, etc.) were on the same page. Greece didn't cheat anyone, it just went along with what it was proposed to in order to get in the common currency. Accusing Greeks of false statistics and what-not was part of political propaganda in Greece and abroad more than anything else.

geezerjay 9y ago
> Greece didn't cheat anyone, So falsifying their accounting to hide double-digit deficits as well as tehir massive debt is not cheating anymore?

occamrazor 9y ago

In its entire history Greece never had an AAA rating. The highest was A+/A1 in 2004. In 2008/09 it was at A/A-.