Links and Short Takes 2/18/10

There is a TON of new stuff on the Goldman/Greece affair, starting with the most damning accusation:

Goldman Sachs contre, tout contre, la Grèce Jean Quatremer (hat tip Eurointelligence). I’d translate the piece, but my French is not what it once was (as in I can read it but I might muff some of the finer points). He accuses Goldman and John Paulson’s hedge funds of being the moving forces behind the attack on Greece and the euro:

Je peux donc vous confirmer que, selon des sources concordantes, Goldman Sachs et le fonds spéculatif dirigé par John Paulson seraient les deux principaux acteurs des attaques contre la Grèce et l’euro.

Merkel hits out at banks over Greek deals Financial Times. Putting two and two together, if the Quatremer J’accuse is confirmed, the wrath of the EU may come down on Goldman. They may not be able to take any immediate action, but look how many believe that Bear was at least in part a victim of its failure to participate in the rescue of LTCM a decade before. If this report is confirmed, I will have to rethink my view that Goldman remained TBTF (more accurately, too interconnected to fail) no matter what the official pretenses were. Goldman may have just made itself Too Controversial To Save.

Stripping away the disguise of derivatives Satyajit Das Financial Times. Explains how the swaps worked.

Asked to choose between bacon and sex, 43 per cent of Canadians would choose…bacon! NewsWire (hat tip reader John D). One could charitably assume this means sex is easy to come by in Canada.

Pregnant woman jailed for having thought about abortion Digital Journal (hat tip reader Frank A)

Ol’ blue eyes faces the final curtain Independent (hat tip reader Michael M)

风水指数 二零一零 or feng-shui your investment FT Alphaville (hat tip reader John L)

Check out Skeptical CPA: Zimbabwe Ben, Our Sartre Independent Accountant

Former Regulator Talks Fraud and the Big Bank Getaway PBS (hat tip reader Nahtanoj)

Slow Trip Across Sea Aids Profit and Environment New York Times (hat tip reader Hillary). Hhm, I wonder how much this depends on money remaining cheap. Longer transit times mean larger inventory carrying costs.

Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data Tax.com (hat tip reader John D)

Antidote du jour:

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40 comments

  1. fresno dan

    “One could charitably assume this means sex is easy to come by in Canada.”
    OR the bacon is damn fine! After all, how many bacons are named for a country (Canadian bacon)?

  2. rjs

    hope you dont mind this: its output of the bing translator on your french story;

    On February 6, on this blog (it is here), I annonçais that Greece was victim of speculative attacks on the part of a large Bank of American business and “hedge fund” (hedge funds) American pariaient on a default in payment of Athens. Until then, we certainly knew that there was speculation, but no one had yet managed to put a name to those who sought to destabilize Greece and the euro area. At that time, my informant had discouraged me to mention names, from which an article quite frustrating, for you and me. But since then, market rumours are made more precise and their names are openly cited in the media, even if it is with good reason, very carefully. The Greek Government itself shall now openly in question. I can therefore confirm that, according to concurrent sources, Goldman Sachs and speculative Fund managed by John Paulson would be the two main actors attacks against Greece and the euro. I’ve already detailed you in my post from February 6 speculation mechanism and I will therefore see are not.
    More shocking, in this case, is without doubt the role played by Goldman Sachs, at a time, advises the Greek Government, and supports secrecy, positions against Greece and the euro. This disorder role is illustrated by the recent case recalled by February 8 Spiegel and the New York Times February 14 (1): in 2002, the Bank of American case helped Greece, against remuneration of 300 million dollars in “creative accounting” operation designed to cover up some of its debt (I will come back in a future column). It is not neutral that at that time Vice President Europe’s Goldman was other than Mario Draghi, become since Governor of the Central Bank of Italy, and just see the position of Vice-President of the European Central Bank him pass under the nose. This special role of Goldman Sachs is illustrated by the fact that the Bank has always been member of syndications in Greece (just as in Portugal): it is a consortium of banks loaded by a Government to put its debt of investor when it is not sure you can directly put on the market by public tender.
    Remember also that on 25 January, Greece has managed to put paper in 5 years for an amount of 8 billion euros then that she did at the outset that 3 billion: demand reached EUR 25 billion! In syndication placed Greek paper, there is of course Goldman Sachs. So far, nothing as very familiar. It is then that a curious fact occurs.
    After this spectacular success, everyone thinks that the markets are calmés, since they come to express that they believed not a defect in Greece. And indeed, this is the lull. But as soon as Wednesday, it is again the storm. An article in the financial Times, single log that read market, operators has indeed just assert that China refused to buy a ‘private placement’ inclined Greek borrowing EUR 25 billion by… Goldman Sachs. What is it? When a Government is concerned to put its debt, it asks directly to a bank to do so on behalf of one or more investors. It is a sign of panic. And the fact that Beijing would have declined the offer is downright alarming. In short, two reasons to flee from Greece markets. This will be belied but markets will require still Athens a yet higher risk premium to their benefit. Those organized brain gain on all fronts: their loan relate them more as well as their CDS these supposed to guard against a default of the borrower (see my post on February 6) State insurance.
    The problem is that this leak is amazing, this type of operation being supposed to remain completely secret. However, since then, the financial Times has revealed that in fact it was the number two of Goldman Sachs, Gary Cohn, who went in November and January to Athens to try to convince the Greek Government to use its services to place debt China EUR 25 billion. In vain. And by an express fact information was then broadcast, virtually making Greece knees and forming fall the euro.
    As of today, Échos Simon Johnson, the former “chief economist” economist the IMF wants the European Commission investigating the actions of Goldman Sachs. This actually seems to win (2).

    (1) This case is definitely not a sample secret.Par, Mark Brown and Alex Chambers described the operation in their article published on September 1, 2005 in Euromoney explicitly titled: “How Europe ‘ s Government have enronized their debts”.

    (2) See also embarrassing questions it poses to Mario Draghi.

  3. Bob

    Sadly this Goldman business is not surprising.

    Your antidote reminded me that I need a new cat. World is too screwed up. Time to get some solace in the simple things.

    Miss you Whoosch!

    1. attempter

      My goofy little Zozo likes to curl up right in front of the keyboard, purring like a lawnmower. I just wish she wouldn’t try sprawling over the keys, sending the screen haywire.

      1. MyLessThanPrimeBeef

        My Bubu could be a clone of your Zozo – he also likes to park himself on my keyboard or, when I have it on, the little CD player long enough to see the top pop open and the music stop when he gets up.

  4. Diego Méndez

    Some of Jean Quatremer’s excerpts (translation is mine):

    “On february 6th, in this blog, I announced Greece had been a victim of attacks by a big US investment bank and US hedge funds, which bet on a Greek default.”

    (…)

    “However, I can confirm you that, according to matching sources, Goldman Sachs and the hedge fund managed by John Paulson, were the two main players in those attacks against Greece and the euro.”

    “The most shocking aspect in all this issue is, no doubt, the role played by Goldman Sachs which was advising the Greek government and, at the same time, taking secret positions against Greece and the euro.”

    “(…) in 2002, the US investment bank aided Greece in “creative-accounting” operationgs hiding a part of its debt, in return for $300m in fees (…)”

    “(…) on January 25th, Greece succeded in placing $8bn in 5-year debt paper, when its target was only $3bn: demand attained $25bn! After this spectacular success, everyone thought markets were calm (…) But, on Wednesday, we’ve got tempest again. An article in the Financial Times, the only newspaper read by market operators, had just stated that China refused to buy euro25bn in Greek debt, a “private placement” managed by… Goldman Sachs.”

    So we’ve got Goldman Sachs hiding Greek debt, selling it with no information on hiding practices, then betting against its client and, once proved wrong, manipulating the Financial Times into publishing a false story in order to create panic.

    1. DownSouth

      Diego,

      You say: “So we’ve got Goldman Sachs hiding Greek debt, selling it with no information on hiding practices, then betting against its client and, once proved wrong, manipulating the Financial Times into publishing a false story in order to create panic.”

      It’s all deja vu of what Goldman did in the US in the mortgage market, no?

      It’s tantamount to a bartender serving his customer doubles, then taking out a life insurance policy on him as he stumbles out the door and gets in his car to drive home, plus creating an obstacle course the bibber must navigate. The bartender makes money selling the drinks, and makes money on the insurance policy when his customer makes his grand exit in a ball of fire. That innocent people might also die in this little ploy is of no concern to the bartender.

      What’s become quite obvious, however, is that Goldmanphilia in Europe is every bit as rampant as it is in the US. Goldman has many friends in high places, such as Mario Draghi and Jürgen Stark, one of Brussels’ most preeminent bankers, who is shamelessly running interference for the banksters:
      http://www.spiegel.de/international/europe/0,1518,677544-2,00.html

      The people of Europe, just like the people of the US, are caught in a cruel vice that is slowly closing in upon them. On one side is the callous and insatiable Goldman Sachs and its incessant demand: “Feed me! Feed me!” On the other side are corrupt politicians and apparatchiks in the employ of Goldman Sachs in both Brussels and Athens. And of course for Goldman’s grand scheme to work, both the politicians in Brussels and in Athens must play ball.

      At this point, I’d say Goldmanphilia is still in its virulent epidemic stage in Brussels, so Athens is the only real wild card. Will democracy prevail in Greece? Will Athens tell the neoliberal Euro-fascists in Brussels to go take a hike and default on their debt? We can only hope.

      1. Cynthia

        DownSouth,

        I imagine that most Goldman apologists, particularly the ones employed by think tanks and in academics, are being paid by Goldman and other very wealthy derivatives dealers to defend the derivatives market, especially with regards to swaps. But apparently they aren’t the least bit concerned that because derivatives are gambling tools more than they are investment instruments, they create very few winners and many, many losers. So unless we want even more of our nation’s wealth transferred to the top, or unless we want our economy to undergo a meltdown about every 5 to 7 years or so (as Jamie Dimon proudly points out), we must either regulate derivatives to make them less risky or ban them altogether!

        1. craazyman

          An Apology

          I’m sorry, that you all are such schmucks. I’m sorry that you don’t have the talent I do and I’m sorry that I’m brilliant and beautiful. I’m sorry that you don’t have the brains to understand modern finance, that you don’t understand that taking opposite positions on any given trade enhances market efficiency. I’m sorry that you don’t even understand efficiency. How long does it take you to brush your teeth in the morning? Why even bother? Do you get paid to brush your teeth? Wouldn’t it be more efficient if you paid somebody else to brush your teeth while you traded options on your blackberry? That’s what I do. See how it works? I’m sorry it’s taking you so long to catch on. My teeth gleam with white perfection. If I brushed them myself, they’d be yellow. Do you get it yet? Taking two sides of the same trade is like having someone brush your hair and your teeth at the same time. It’s total, perfect, magnificent efficiency. This is what we strive for. It’s like it must have been in Ancient Egypt among the Pharoahs. But our Pyramids are more efficient. I hope you understand.

          Yours truly sorrily,
          Edwina N. A. Reers, PhD Finance and Counting

    2. Diego Méndez

      DownSouth,

      Goldman Sachs has 5 living years left, and even fewer in Europe. Once this story goes public, GS will probably be banned in Europe and all Goldmanphiles will be blacklisted.

      1. DownSouth

        I’m skeptical, but I hope like hell I’m proven wrong and the optimists like yourself are proven right.

    3. charles

      Diego,
      You should not forget that GS “de facto” has an office within the ECB.
      Since your French seems pretty good, you may want to have
      a look at this quarterly report by the French “thinktank”
      LEAP-GEAB: http://www.leap2020.eu/GEAB-N-42-est-disponible!-Second-trimestre-2010-Aggravation-brutale-de-la-crise-systemique-globale-Renforcement-de-cinq_a4288.html
      The report hints that the Greek trick was laready performed by GS. Were it to be the UK, GSI London would be under investigation by the EU ( unlikely imho ) or the FSA, and you can imagine ‘Gordo’ outdoing himself to sabotage the investigation or some ‘accident’ happening to Adair Turner ( the Tories want to ‘shelve the FSA within the BOE,the FED model, lol )

  5. Bas

    The anglophone media were all on board for this manufactured eurocrisis. Including this great blog. That’s what really worries me.

    1. DownSouth

      Your romanticism is admirable in many ways, and serves as a much needed counterweight to the extreme pessimism and defeatism of an Augustine or Hobbes. But as a philosophy to guide public policymaking, it is not very useful.

      One must remember that your sort of romantic idealism is what brought us communism (sentimental faith in government) and the current Libertarian-Austrian-Neoliberal scourge that is ravaging the globe (sentimental faith in free markets).

      You wrap yourself in a garment of pious self-righteousness, but your behavior is far from benign. Your exhortations of unconditional altruism are really quite destructive to social cohesion and cooperation and are deserving of the most aggressive rebuttal:

      We propose that multi-individual negotiations result in the emergence of social norms that are collectively enforced. We base this proposal on a result obtained by Boyd and Richerson, and treated more recently by Bowles and Gintis, in which cooperation is modeled with punishment. These four researchers found that cooperation can be stable in large groups, if noncooperators are punished and if those who do not punish noncooperators are also punished.
      Moral Sentiments and Material Interests, Herbert Gintis et al

  6. Francois T

    Agree with you Yves.
    If what Quatremer wrote is true, it’ll bleed profusely for Goldman Sachs.

    It’s one thing for GS to stick it to Obama, since he needs their campaign money, and he’s an elitist at heart; but quite a different animal to stick it to the whole Europe.

    They’ve gone too far this time.

  7. Andrew Foland

    Yves, you were mentioning recently that there was probably a single relationship manager for Greece at Goldman. Bond Girl found a story from 2003 that apparently names him: “Antigone Loudiadis, the London-based European head of sales for the firm’s fixed-income, currencies and commodities unit.”

    1. MyLessThanPrimeBeef

      So, 2010 is bad for anything water related.

      I suppose that means underwater mortgages. That’s easy enough to see.

      What about above water mortgages? Are they also water related?

  8. Kevin Connor

    The Greek daily To Vima first reported the Paulson connection last month: http://www.tovima.gr/default.asp?pid=2&ct=32&artId=310435&dt=20/01/2010

    The google translation isn’t great, and I couldn’t really tell what their source was. These rumors have subsequently floated in the FT, the Telegraph, and elsewhere, and could be due to the fact that Paulson & Co was there last month.

    I wrote about it in this blog post: http://blog.littlesis.org/2010/02/15/what-is-john-paulson-doing-in-greece/

  9. Francois T

    Here’s the translation of Quatremer’s article:

    On February 6, on this blog, I wrote that Greece was victim of speculative attacks on the part of a large Bank of American business and hedge funds betting on a default in payment of Athens. Until then, we certainly knew that there was speculation, but no one had yet managed to put a name to those who sought to destabilize Greece and the euro area. At that time, my informant had discouraged me to mention names, which was quite frustrating, for you and me. However, since then, market rumors have become more precise and their names, openly cited in the media, even if it is with good reason, very carefully. The Greek Government itself accuses them openly. I can therefore confirm that, according to concurrent sources, Goldman Sachs and speculative Fund managed by John Paulson would be the two main actors of these attacks against Greece and the euro. I have already detailed you in my post from February 6 the speculation mechanism
    More shocking, in this case, is without doubt the role played by Goldman Sachs, whom, at the same time, it was advising the Greek Government, secretly took contrary positions against Greece and the euro. This murky behavior is illustrated by the recent case recalled by February 8 Spiegel and the New York Times February 14(1): in 2002, the Bank of American case helped Greece, against remuneration of 300 million dollars in “creative accounting” operation designed to cover up some of its debt (I will come back to this topic in a future column). It is not inconsequential to know that at that time Vice President Europe’s Goldman was other than Mario Draghi, now Governor of the Central Bank of Italy, and just saw the position of Vice-President of the European Central Bank escaped him. This special role of Goldman Sachs is illustrated by the fact that the Bank has always been member of syndications in Greece (just as in Portugal): it is a consortium of banks asked by a Government to find investors for their sovereign debt when said government is not sure it can directly go to the market by public tender.

    Remember also that on 25 January, Greece had managed to sell 5 years notes for an amount of 8 billion euros whereas they were only aiming for 3 billion: demand, however, reached EUR 25 billion! Goldman Sachs was part of the consortium that placed the Greek paper. So far, nothing unusual here. It is then that a curious fact occurs.

    After this spectacular success, everyone thinks that the markets are reassured, since they implicitly express that they believed a Greek default is not in the cards. And indeed, there is a lull. However, as soon as Wednesday, another storm hit the markets. An article in the Financial Times, the only paper read by market, operators has indeed just assert that China refused to buy EUR 25 billion of Greek debt, a ‘private placement’ by… Goldman Sachs. What is it? When a Government is concerned that it won’t be able to sell its debt directly to investors, it asks a bank (or consortium of banks) to do so on its behalf. It is a sign of panic. And the fact that Beijing would have declined the offer would be downright alarming. In short, two reasons to flee from Greece markets. The Chinese denied the news, but markets still required Athens a higher risk premium. Those who orchestrated the leaks gained on all fronts: their loan suddenly became more profitable, as well as their CDS, these “insurance” instruments supposed to guard against a default of the borrower (see my post on February 6)

    The problem is that this leak is amazing, since this type of operation is supposed to remain completely secret. However, since then, the financial Times has revealed that in fact it was the number two of Goldman Sachs, Gary Cohn, who went in November and January to Athens to try to convince the Greek Government to use its services to place debt China EUR 25 billion. To no avail. And then, comes a deliberate leak of highly sensitive information, virtually putting Greece on its knees and triggering a fall in the euro.

    According to Échos of today, Simon Johnson, the former “chief economist” economist the IMF wants the European Commission to investigate the actions of Goldman Sachs. This actually seems to become inevitable (2).

    (1) This case is definitely not a sample secret. For instance, Mark Brown and Alex Chambers described the operation in their article published on September 1, 2005 in Euromoney explicitly titled: “How Europe ‘ s Government have enronized their debts”.

    (2) See also embarrassing questions he asks to Mario Draghi. http://baselinescenario.com/2010/02/15/fallout-from-goldman-greece-affair-widens-impact-on-the-european-central-bank/#more-6420

    Hope this helps

    1. MyLessThanPrimeBeef

      Thanks, Francois.

      “their loan suddenly became more profitable” – how does that work exactly?

  10. kevinearick

    1) in a well-run economy, money is not an issue;
    2) money is like a set of training wheels, and a big part of the population has been bred to seek bigger and bigger training wheels, creating all kinds of non-performing assets, sending the opportunity cost of government vertical, and crashing the economy;
    3) the other species do not have training wheels;
    4) the planet does not like non-performing assets;
    5) the economy for the last 35 years was fake, along with all the paper generated, including the pensions;
    6) the kids got screwed, and they know it;
    7) intergenerational responsibility is required to run an economy;
    8) those who lost their training wheels first, and reorganized diligently, will be the best off;
    9) those who crash last will be the worst off;
    10) small labor doesn’t operate on a monetary basis, which is why big capital is so adamant about identifying it and assigning it debt, destroying its own economy. Once you know where the electron is, the voltage drops to 0;
    11) those closest to evolution are most secure in their skill set. those farthest from evolution are the least secure, which is why they collect non-performing assets;
    12) the planet is removing the training wheels by increasing environmental variability as human economic voltage drops to 0;
    13) Big capital runs a win-lose system; small labor runs a win-win system. The middle class willingly gave up its neutrality as it aged, seeking the comfort of non-change at the expense of liberty to change. that was short-sighted.

    humanity beats long, long odds every time. that trend may change, but I wouldn’t bet on it. evolution has a way of introducing hills at just the right time, to weed out the neanderthals.

    p.s. nice book cover; quite apt.

    p.p.s. for those persistent enough to contact me, be aware that you are under a microscope in doing so.

    1. kevinearick

      small labor has not been sitting idle for 35 years. the new motor is there.

      the middle class has to reorganize itself in order to see it, and hook up to it.

      some of the prospective governors are acutely aware of the problem, and there are many open seats.

      1. kevinearick

        we took in the kids that were strong enough to escape capital slavery, like we always do, and made enterprise architects out of them.

        now, capital has to convince them to provide the voltage. regaining their trust is going to be an arduous proposition.

        those who cast off their non-performing assets, even though they begin anew, will be far ahead of the others, many of whom will sink to the botttom.

        there are masons, freemasons, and free masons. the kids are the latter. the “founding fathers” bs isn’t going to fly.

        that gooey stuff between the plates is drying up quick.

  11. psychohistorian

    Is anyone in jail yet? Is anyone indited yet?

    I am already against the next war they will start to change focus when it starts getting dicey.

    We are but textual white noise……

  12. MichaelC

    Merkel better hope the wrath of the EU is spent on GS before Deutsche Bank’s derivatives get an airing. All the IBs, Anglo and Euro are already TCTS. Alas, Goldman won’t be the sacrificial lamb. Fun times ahead.

  13. MyLessThanPrimeBeef

    Yves should start a daily ‘What is Goldman doing today?’

    My guess is they are taking a break from attacking Greece to speculate in oil.

  14. charles

    Yves,
    the really interesting article from Quatremer is the preceding one http://bruxelles.blogs.liberation.fr/coulisses/2010/02/les-march%C3%A9s-financiers-am%C3%A9ricains-attaquent-leuro.html

    “D’après mes informations, les deux hedge funds qui tiennent l’essentiel du marché grec des CDS ont été furieux de n’avoir reçu que 2 % du dernier emprunt grec (lancé le 25 janvier, pour une durée de 5 ans, il a recueilli 25 milliards d’euros de demande, pour 8 milliards finalement levés). Comme ils ont acquis beaucoup de CDS, il leur fallait, pour garantir leurs gains (en cas de chute des taux desdits CDS), mettre en face du papier, c’est-à-dire des emprunts d’État ….
    Car ils ont un gros problème : pour l’instant, ils ne peuvent pas vendre ces CDS sinon ils feraient eux-mêmes baisser les cours. Pour montrer leur force de frappe, et faire grimper encore les CDS, ils attaquent donc la Grèce en créant de la panique …
    … Même jeu pour la banque d’investissement américaine qui espère, à terme, pouvoir prêter directement de l’argent à une Grèce devenue incapable d’emprunter sur les marchés. Une fois le pays à genoux, elle ira voir le gouvernement pour lui proposer un prêt à un taux évidemment prohibitif…
    Afin d’accroître la panique, ces hedges funds et la banque d’investissement américaine se sont mis à vendre à tour de bras de l’euro, suivis par des investisseurs tétanisés. Si l’euro baisse, n’est-ce pas parce que la zone euro va éclater ? Ce qui justifie que l’on exige des taux d’intérêt toujours plus hauts de la Grèce, du Portugal et de l’Espagne…”

    which translate roughly in

    “According to my sources, the two hedge funds that holds most of the Greek market for CDS were furious to be alloted only 2% of Greek Government last issuance (launched on the 25/1 for a 5Y maturity, it attracted 25 billion euro bids, but 8 billion only were issued). As they had a lot of CDS, they needed, in order to lock their profit, to back it with Government paper. So now they have a big problem : They can’t sell their CDS because it would reduce the spreads. To show their muscles, and make the spread climb even higher, they attack Greece by creating panic….
    Same game for the American Investment Bank (sic) who hopes, eventually, to lend directly money to a Greece that cannot borrow any more in the market. Once the country is on its knees, it will go and see the government to propose a loan at a usurious rate.

    In order to increase the panic, these hedge funds and the American investment bank started to sell euro in size, followed by scared investors. If euro goes down, shouldn’t it be because the euro zone will explode? That justifies asking ever higher interest rates to Greece, Portugal and Spain…”

    It is a classic, “blame the short seller” story. I am surprised that you are actually on this side of the choir Yves. What Paulson says to Greek and Euros government is essntially the same thing that Chanos said to Skilling at Enron : they are (not only Greece !) massively lying on their national accounts and can’t expect to have the trust of markets for ever.

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