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I hope that money will never be paid back, just to teach the people who accommodated this a lesson. Of course Goldman Sachs themselves cashed in on the deal im
by Maarten88 11y ago
I hope that money will never be paid back, just to teach the people who accommodated this a lesson.
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.
- PythonicAlpha 11y agoIt will be like it happened to the German banks: When in trouble, tax payers will bail them out.
- arbitrage314 11y agoPeople like to rip on Goldman, and indeed, they deserve it. 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.
- jessaustin 11y agoGoldman (and Paulson) profited hugely by the bailout of AIG. This bailout was focused on securities issued by AIG that GS held, and certainly wouldn't have taken place had the securities been held by e.g. Lehman. Let's rip Goldman for that one, too. Counterparty risk is a bitch, unless you own the Treasury Department.
- PythonicAlpha 11y agoIn the case of Greece: As much I remember, one big German bank held many debts of this country in 2010, but the CEO of that bank also was the adviser of the German chancellor. No wonder, the so called rescue-umbrella did also rescue this banks money.
- deleted 11y ago[deleted]
- jessaustin 11y agoThat's John Paulson, not Hank Paulson. I don't actually have much of a problem with John. He was never hired by Congress and the President for the benefit of the American public, so he never had a chance to abuse such a position to line his own pockets and those of his cronies.
- arbitrage314 11y agohttp://www.businessinsider.com/why-goldman-didnt-need-an-aig-bailout-and-why-it-didnt-make-a-fortune-off-aig-either-2009-4 http://www.businessinsider.com/why-goldman-didnt-need-an-aig...
- arbitrage314 11y ago(In other words, Goldman bought $100 million of credit default swaps against AIG failing.)
- jessaustin 11y agoOh, well, GS says it did nothing wrong. Moving along! 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/159184438X http://www.amazon.com/All-Devils-Are-Here-Financial/dp/15918...
- arbitrage314 11y agoI'm truly very sorry if I upset you. I'm just trying to make sure we're on the same page. Goldman is indeed guilty, but not in a way that we agree. 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_sachs-aig_its_likely_worse_than_you_think_97587.html http://www.realclearmarkets.com/articles/2010/01/13/goldman_...
- mafribe 11y agoFrench banks lent much more heavily to Greece than german banks. So it was really a bailout of french banks.
- tedunangst 11y agoWell, what would GS be held accountable for? What law did they break?
- cm2187 11y agoI am pretty sure that providing derivatives to enable a client to hide debt is illegal, particularly since Enron.
- tedunangst 11y agoGS isn't responsible for Greece's accounting/auditing, are they? They sold Greece a swap. Greece elected not to declare it as debt. It's not like GS has the power to force Greece to carry the debt on their books.
- cm2187 11y agoIt might not be the case for Greece as I think accounting standards and regulations do not apply to states. But if that was for a company, I am pretty sure that structuring a transaction off-market with the intent to help a client hide its debt to the market would land a banker in jail.
- tedunangst 11y agoCould be, though the swap in question doesn't sound especially exotic. Would it count as a liability under GAAP?
- cm2187 11y agoI haven't seen the terms but I believe it is a simple cross currency swap. The problem being less the complexity than the off marketness. I believe that most accounting standards make you realise a loss or a liability if you enter into a significantly off market transaction.
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- cm2187 11y agoI am not sure of what you mean by "client money". It is not a deposit taking bank. (And even deposit taking banks are wrongly perceived as taking risks with clients deposits when in reality all losses go to the bank shareholders and the deposits are state guaranteed).
- pcr0 11y agoThey are an investment bank and they manage investments for clients. Clients typically being large corporations but also HNWIs.
- fredkbloggs 11y ago> I hope that money will never be paid back, just to teach the people who accommodated this a lesson. 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.
- sampo 11y ago> There is very little Greek debt left in private hands 34 billion, or 12%, seems to be private: http://graphics.wsj.com/greece-debt-timeline/ http://graphics.wsj.com/greece-debt-timeline/
- fredkbloggs 11y agoI consider that very little. For comparison, Argentina defaulted on over twice that amount in 2002 (see https://en.wikipedia.org/wiki/Argentine_debt_restructuring https://en.wikipedia.org/wiki/Argentine_debt_restructuring). It also seems fairly likely at this point that many of the remaining private holders are non-banks that purchased the debt at a considerable discount to par, but that's speculation on my part. 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.
- sampo 11y ago> Argentina defaulted on over twice that amount Argentina has 4 times larger population, though.
- mineshaftgap 11y agoIt was only a matter of time until someone found a way to blame the Americans, however tenuous. Nothing Europeans do is ever their own fault, which is how they got into this mess in the first place.
- RobertoG 11y agoDon't worry. There is blame enough for everybody, if this is the game we want to play, but we should try to undernstand and fix the problem instead.
- mineshaftgap 11y agoEveryone knows what the problem is and has the entire time.
- matthewmacleod 11y agoThis is a gross misrepresentation of the point being made and amounts to nothing more than intellectually lazy finger-pointing.
- mineshaftgap 11y agoIn what way?
- Shivetya 11y agosorry, lenders operate under the principal that states do not default and do we really want them to operate otherwise? 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.
- gonvaled 11y agoGS already sold the instruments - to a greek bank!