THE NEXT FEW DAYS I WANT TO TALK ABOUT THE COMING ECONOMIC COLLAPSE IN 2015. I WILL START BY REMINDING PEOPLE WANT CAUSED THE 2008 CRASH AND SHOW HOW THE TWO ARE TIED TO TRANSFERRING ALL WEALTH TO THE TOP AND USING THE EXCUSE OF GOVERNMENT DEBT TO DISMANTLE OUR DEMOCRATIC STRUCTURES. NEO-LIBERALS AND NEO-CONS WILL TAKE IT ALL!
I want to encourage people to pay attention to a subject that bores everyone but is the source of the looting of US government coffers and individual's pockets. The Federal Reserve and Wall Street frauds. We need to know all of this CAN be reversed. The economy is closer to collapse yet again by the same people playing the same games and all of it illegal. So, let's review what caused the crash of 2008 to see how it relates to what will bring the economy down in 2015. Remember, these economic policies started when Reagan/Clinton took the Republican and Democratic Parties to neo-liberalism. The goal back then was to dismantle all of the public structures built for strong 1st world country to create the wealth inequity that goes with empire-building. The same was happening in Europe and the UK. This is why Maryland has no public justice or oversight and accountability today----all of this boom and bust is no accident----it is all about wealth redistribution to the top.
Clinton deregulated and broke the Glass Steagall to set the stage for this explosive growth of US corporations with no overight and Bush simply allowed for an 'anything goes' environment. Reagan/Clinton/Bush working with Alan Greenspan and Wall Street. Greenspan/Geithner allowed open fraud and corruption in the financial markets and Bush made sure the US Justice Department and financial agencies aided and abetted these crime. The goal was transferring real estate from citizens to the banks through foreclosure so to control development especially in urban centers like Baltimore as well as sending trillions of dollars in government funding for these subprime loans to the banks.
'We didn't see that coming' said Greenspan. Meanwhile, neo-liberals at the state and local levels were allowing the subprime mortgage fraud go wild. This same thing happened in Europe as subprime mortgage loans filled their economy as well. It was Obama's job to make sure the money stayed with those committing the fraud.
The constant portrayal of this Visigoth looting as creating homeownership for low-income people -----knowing a collapse would send people into foreclosure-----shows the social pathology driving Wall Street and neo-liberals and neo-cons.
IT IS NOT LEGAL FOR ANYONE TO ALLOW OPEN FRAUD AND CORRUPTION AND GREENSPAN WAS ALLOWED TO JUST FADE AWAY FOR ONE OF THE GREATEST CRIMES IN HISTORY.
This was no maestro---he simply used people's faith in government and Rule of Law and sold people in investing in a system he knew would blow up making most people losers. Think what is happening today---media is telling you the market is strong, politicians are throwing pensions into it and we all know it is getting ready to crash....and in 2015 we will hear O'Malley and Rawlings Blake who are loading the state with debt just as they oversaw the subprime mortgage fraud----'I didn't see that coming'!
WELL, WE SEE IT COMING AND IT IS INFUSED WITH PUBLIC MALFEASANCE AND FRAUD.
Alan Greenspan: Public Enemy Number One
By Stephen Lendman Global Research, October 27, 2008
With so many good choices, it’s hard just picking one. But given the gravity of today’s financial crisis, one name stands out above others. The “maestro,” as Bob Woodward called him in his book by that title. The “Temple of Boom” chairman, according to a New York Times book review. Standing “bestride the Fed like a colossus.” Now defrocked as the “maestro” of misery. Alan Greenspan. From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn’t Federal and has no reserves.
It represents bankers who own it. Big and powerful ones. Not the state or public interest. It prints money. Controls its supply and price. Loans it out for profit and charges the government interest it wouldn’t have to pay if Treasury instead of Federal Reserve notes were issued. People, as a result, pay more in taxes for debt service. The nation is more crisis-prone. Over time they increase in severity. The current one the most serious since the Great Depression. Potentially the greatest ever. The result of Greenspan’s 18 year irresponsible legacy.
He championed deregulation and presided over an earlier version of today’s crisis. The Reagan-era savings and loan fraud. It bankrupted 2200 banks. Cost taxpayers around $200 billion and for many people their savings in S & Ls they thought safe.
In the 1990s, he engineered the largest ever stock market bubble and bust in history through incompetence, subservience to Wall Street, and dereliction of duty. In January 2000, weeks short of the market peak, he claimed that “the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever….Lofty stock prices have reduced the cost of capital. The result has been a veritable explosion of spending on high-tech equipment….And I see nothing to suggest that these opportunities will peter out anytime soon….Indeed many argue that the pace of innovation will continue to quicken….to exploit the still largely untapped potential for e-commerce, especially the business-to-business arena.”
A week later, the Nasdaq peaked at 5048. Lost 78% of its value by October 2002. The S&P 500 49% from its March 2000 high to its October 2002 bottom. Individual investors were left high and dry as a result. For Mr. Greenspan, it was back to engineering multiple bubbles with 1% interest rates and a tsunami of easy money.
He advocated less regulation, not more. Voluntary oversight. The idea that markets work best so let them. Government intervention as the problem, not the solution. In the mid-1990s, he told a congressional committee:
“Risks in financial markets, including derivative markets, are being regulated by private parties. There is nothing involved in federal regulation per se which makes it superior to market regulation.”
On October 23 before the House Government Oversight and Reform committee, he refused to accept blame for the current crisis, but softened his tone and admitted a “flaw” in his ideology. Confessed his faith in deregulation was shaken. Said he was in a “state of shocked disbelief.” Unclear on what went wrong. Not sure “how significant or permanent it is,” and added:
– “We are in the midst of a once-in-a century credit tsunami (requiring) unprecedented measures;”
– “This crisis has turned out to be much broader than anything I could have imagined;”
– “fears of insolvency are now paramount;”
– significant layoffs and unemployment are ahead;
– a “marked retrenchment of consumer spending” as well;
– containing the crisis is conditional on stabilizing home prices;
– at best, it’s “still many months in the future;”
What went wrong with policies that “worked so effectively for nearly four decades,” he asked? Securitizing home mortgages. “Excess demand” for them, and failure to properly price them he answered. Unmentioned was unbridled greed. The greatest ever fraud. No oversight, and a predictable crisis only surprising in its magnitude and how it grew to unmanageable severity.
Greenspan is now softening on regulation but barely enough to matter. Too little, too late by any standard, and only to restore stability after which chastened investors “will be exceptionally cautious.” In the end, in his view, “This crisis will pass, and America will reemerge with a far sounder financial system.” Until another Fed chairman repeats his mistakes. Creates a crisis too big to contain. Destroys unfettered capitalism as we know it. Changes the world irrevocably as a consequence. Unless this time is the big one and does it sooner.
In March 1999, Greenspan was optimistic at the end of a robust decade (that James Petras calls “the golden age of pillage”) with no worries about new millennium meltdowns. He addressed the Futures Industry Association and said it would be “a major mistake” to increase rules on how banks assess risks when they use derivatives. He added: “By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives.” By a compounded 20% rate throughout the decade. Around 30% alone by banks in 1998. And, according to Greenspan, “The reason that (derivatives) growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risk….the value added of derivatives themselves derives from their ability to enhance the process of wealth creation (and) one counterparty’s market loss is the (other’s) gain.”
Overall, they’ve increased the standard of living of people globally, he claimed. In fact, they contributed to global crises in the 1990s. Hot money in, and meltdowns when it exited. The problem is derivatives work well in bull markets, but are disastrous when they’re down. Going up they do nothing for ordinary people, but during downturns receding tides sink all boats and all in them and aren’t the zero sum game Greenspan suggested.
Worst of all are so-called credit default swaps (CDSs). The most widely traded credit derivative. In the tens of trillions of dollars. A $43 trillion market, according to PIMCO’s Bill Gross. The International Swaps and Derivatives Association (ISDA) estimates it at $54.6 trillion. Down from $62 trillion at yearend 2007. Others place it higher, but key is what they are and how they’re used. They resemble insurance (on risky mortgages), but, in fact, are for little more than casino-type gambling. Unregulated with no transparency in the shadow banking system that dwarfs the traditional one in size and risk.
Gross describes it this way. It “craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.” CDSs are at the center of shadow banking, and Gross and others warn about possible financial Armageddon if things begin collapsing.
A “Cheerleader for Imprudence”
That, according to James Grant, editor of Grant’s Interest Rate Observer. Greenspan’s “biggest mistake was inciting people to do imprudent things.” He called him “marble-mouthed” for his “Greenspeak” and not simply admitting he “was as blind as those (he) pretended to lead. This sense of security that people invested in the idea of perfect control by an all-knowing brain at the top, that idea’s been shattered.”
In July, Grant was outspoken in a Wall Street Journal op-ed titled “Why No Outrage?” He quoted Mary Elizabeth Lease from the Populist era haranguing farmers to “raise less corn and more hell.” He asked why today’s financial victims aren’t protesting Fed policy “of showering dollars on the (monied) people who would seem to (least) need them.” Where are the “uncounted improvident?” Have they “not suffered (enough) at the hands of what used to be called The Interests? Have the stewards of other people’s money not made a hash of high finance? Where is the people’s wrath?” In the wake of the “greatest (ever) failure of ratings and risk management.”
Greenspan’s Fed cut interest rates to 1%. “House prices levitated as mortgage underwriting standards collapsed.” He claimed earlier that property appreciation was a sign of prosperity and a strong economy and “while home prices do on occasion decline, large declines are rare.” Most homeowners experience “a modest but persistent rise in home values that is perceived to be largely permanent.”
Especially, according to Grant, at a time that “credit markets went into speculative orbit, and an idea took hold. Risk….was yesterday’s problem.” It led to “one of the wildest chapters in the history of lending and borrowing.” As a consequence, an $8 trillion home valuation wealth bubble and an unprecedented oversupply of unsold properties. Now in even more oversupply as owners default. Are foreclosed on or simply walk away from unaffordable underwater assets. They sit empty with no one to buy them except for those able in distressed sales.
The whole episode criminal and avoidable had the Fed used its authority under the 1994 Home Ownership and Equity Protection Act. It authorized the central bank to monitor abuses and intervene, if necessary, to prevent abusive lender practices. It failed to do it.
The result was predictable. People and the economy in crisis. Greenspan orchestrated it. His successor Bernanke did nothing to curb it. Wall Street was on a roll until it crashed. Huey Long once compared JD Rockefeller to “the fat guy who ruins a good barbecue by taking too much.” Wall Street thrives on it. Fed largesse enables it. The problem is their indigestion affects everyone. A stomachache spreading round the world. How bad it’ll get and where it stops nobody knows. Blame it on Greenspan. Our “former clairvoyant,” according to Grant.
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Below you hear the same talk as we did in 2006-2007 as the subprime mortgage market began to implode and again it was the FED policy and the Obama Administration/Congress that fueled this crash just as it was Greenspan and Bush with the subprime mortgage loans.
Where last fraud centered on redistributing real estate to the few----this fraud centers on using credit bond and municipal debt to create the excuse to privatize all that is public and end public sector pensions and benefits. The 2015 crash will be so deep with no help from the Federal government still holding $17 trillion in debt from the last massive corporate fraud that the US economy will look like Greece and Spain. It will place the US in the same double-disaster as Europe---subprime loan fraud/sovereign debt fraud.
As the article below states-----hold on to your hats as the market sees a mass exodus from the bond market!!!
Where this article makes it sound that Yellen is being a 'dove'....she has no options....the FED under Bernanke did what the FED under Greenspan did......fed the bond market bubble until there was no return. Remember, Wall Street wants people back in the stock market and blowing up the once safest place to invest, the bond market, will do that. Soon, everyone will be fleeing the bond market as it collapses right back to the stock market. They are making trapped rats of our pension system and giving us no opportunity for a stable economy.
THAT'S A NEO-LIBERAL/NEO-CON FOR YOU!!!!! GET RID OF THEM!!!
Fed Officials Trying to Warn Bond Markets
July 15th, 2014
in contributors
by EconMatters, EconMatters.com
The Purpose of Complacency Talk
The Fed officials have been coming out in speeches the last couple of weeks with rhetoric about 'complacency' and other such code words for chasing risk ahead of what the Federal Reserve knows is going to be an abrupt change in monetary policy over the next six months.
Follow up:
The Fed is concerned because they know they want an orderly transition in markets and not causing major dislocations in markets by massive selloffs. However, the getting is so good with interest free money that participants are going to push this edge they have in markets right up until the last possible exit minute.
So despite the fact that QE ends in October with no more bond buying by the Fed, the 10-Year is still sitting at 2.50% with participants making money hand over fist with the borrow at 15-25 basis points and investing in yield instruments with massive leverage trades that has been so popular and irresistible by investors looking for 'free money arbitrage' opportunities.
An Orderly Unwind
The problem that the Fed has rightly identified is that they are not going to get an orderly exit at this pace, the unwind is going to be massive, jarring, and definitely not 'orderly'! The Bond markets, take the 10-year yield could literally have a 25 or 35 basis point move over a 24 hour period that would wreak a lot of havoc on fund flows, asset classes and financial markets.
This turmoil in the bond market could really be disastrous because the Fed participants realize the bond market isn't being priced currently where the Fed is moving to in terms of monetary policy. The Fed should be alarmed because the unwind is setting up for a possible 100 basis point move in two months' time frame type of fund dislocation and reallocation of capital, and that is going to be problematic for markets!
But the Fed only has themselves to blame for this predicament as in this case you cannot have your cake and eat it too! Janet Yellen cannot be so dovish at Fed news conferences given her reputation as a dove among doves, and get any respect from market participants; the trade is going to be all-in and one-sided without the slightest regard for the risks associated with being so aggressive.
In short, Janet Yellen has encouraged the one thing that Fed governors should always avoid being so 'transparent' that market participants go full boar on a trade, one-sided, highly levered, unhedged, and nothing could possibly happen with this dovish a Fed Chairperson at the helm trade! In a nutshell they have become too 'complacent' or they have taken her dovishness for granted.
Pigs at the Bond Trough
The pattern has been quite clear in Bond Markets wait until after the 200k plus Employment Report blows the 10-Year up to 2.70%, and come in and buy bonds like there is not tomorrow with huge leverage, until they have to get out of the way of the next CPI, GDP or Employment Report - as this process has repeated itself over the last four months of financial markets. The Levered Yield Trade has been the trade of the year so far in 2014 - the strategy of investing in anything with yield from over-valued utilities, pricey bonds and even stodgy low growth Big Caps with some semblance of a dividend yield!
Janet Yellen cannot have her Dovish Cake, and eat it too in the form of an "Orderly Unwind"!
So the Fed has to realize that sending out the mignons of the Fed isn't going to counteract Janet Yellen's dovishness. If they want markets to start unwinding trades ahead of policy adjustments that are coming and not wait until the last possible minute, then Janet Yellen herself is going to have to send a shot across the monetary bow so to speak!
She is going to have to come out with a hawkish tone to garner some healthy respect for normalization of fed policy by markets. She is dovish we get that, but the Fed is about to change monetary policy, and much sooner than is currently priced into many asset classes, and it is going to take some considerable time if participants started repositioning today to unwind many of these massive positions in markets, any sense or orderliness necessitates a little at a time versus all at once!
Janet Yellen has got to start talking hawkish to get this process started otherwise her worst fear is going to materialize in spades as market participants are all going to wait until the last minute trying to make that last dollar on the yield trade, and cause huge market turbulence when they all try to get out at once!
The Data Indicate 1st QTR 2015 Rate Hike at the Latest!
The Employment numbers, the inflation numbers, and the risky valuations in financial markets all point to the Fed needing to start raising rates sometime in the first quarter of next year. This is much sooner than Janet Yellen's Dovish talk has markets pricing in with their forecast for late in 2015 for the first rate hike.
Market participants are far too levered up, all on the same side, and well behind the monetary normalization curve of when the first rate hike is actually going to occur. This is a recipe for disaster, and that seminal light bulb moment in financial markets when everybody realizes, that moment in Margin Call where the analyst drops the ear-buds out saying internally holy shit, that they need to liquidate everything right now. In other words, the entire market all hits the sell button at the same time!
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Wall Street and the FED thinks the steps towards stabilizing the economy have been a success and they are ready for the coming crash. What's not to like---the American people lose all their wealth as the richest wealth soars.
Below you see an article that shows the progression of the plan. Goldman Sachs was key to the financial frauds in the US but were key in bringing down the European social society. They targeted especially Greece and Spain with fraudulent financial instruments loading these nations with huge sovereign debt having the goal of imploding the economies forcing the dismantling of social society. Why this is important to Americans today? It is these same tactics are now coming to the US. We experienced the subprime mortgage fraud in the US as they did in Europe but Europe was brought down harder because a second fraud----sovereign/municipal debt fraud ----completely emptied their government coffers. This is why Europe is in deeper distress than the US. Well, the time is now for the sovereign debt fraud in the US and it looks like levered municipal bond debt, mortgaged tax debt, and state and local money tied to development that cannot be afforded.
THIS MASSIVE DEBT BUILDUP ON THE BACKS OF OUR GOVERNMENT IS WHAT CREATED IN EUROPE THE DEEPEST OF RECESSIONS.
This happened in Europe between 2001 and 2007 and now it is being done here in the US between 2008 and 2015. The subprime mortgage fraud was about taking the American people's wealth-----this coming municipal bond leverage fraud is about taking the government wealth as happened in Europe.
Goldman Sachs and DeutscheBank both created fraudulent financial instruments that allowed government officials to hide their national debt so more debt could be taken. None of this is legal and Goldman Sachs knew it was breaking the law. So Greece and Spain were made to look like the government budgets were balanced when they were ever deeper in debt. Making these governments look like they were AAA mirrored making subprime mortgage loans look AAA. These government officials in Greece and Spain took more and more credit and distributed money to friends and off-shored it until these economies imploded from debt. Europe's TROIKA then came in to make the Greek and Spanish people pay for the fraud just as is happening in the US with the subprime mortgage and other financial frauds. You see Europe's Draghi and his connection to Goldman Sachs overseeing the crisis just as Tim Geithner did in the US.
THE KEY WORDS HERE ARE HIDING SOVEREIGN DEBT TO LOAD MORE DEBT TO MAKE THE IMPLOSION SO DEEP AS TO FORCE THE DISMANTLING OF GOVERNMENT ASSETS.
That is what happened in Europe. Subprime mortgage fraud and sovereign debt fraud. Today, the US economy is ready to implode from sovereign/municipal bond debt. Maryland is ground zero for this. O'Malley and Maryland Assembly and Baltimore City Hall has loaded the state and city with so much leverage in credit bonds and tax deals that when the crash comes in 2015 the public will be stuck with debt so large----just as Greece and Spain---that the recession will be deep and the debt too large, forcing the privatization of all that is public.
THIS IS A PLAN---NOT SIMPLY GREED OR BAD POLICY. 'MARYLAND HAS A 'AAA' RATING FROM MOODY'S YOU SAY'-----you mean the same Moody's that gave subprime mortgage loans the same AAA?
Maryland's economy is one great big shell game. This is not a Democrat vs Republican issue because Republicans are doing the same in their states. It is a complete breakdown of Rule of Law and a rush to take what you can. The article below is long but please glance through to see how Goldman Sachs worked to implode Greece's economy and think about what is happening in Maryland!
Another long article but please glance through.
EU Ignores Falsification of Greek Public Finance Data
Posted on 18 December 2011 by admin by Guest Author ECB Watch
This is a companion to another article to be published Draghi Nomination Based on Deception. Here, we address the broader issue of the falsification of Greece’s public finance data. We will look into Eurostat audits (Walter Radermacher), the ECB’s willful hindrance against the release of records (Jean Claude Trichet), Goldman Sachs’ communication (Gerald Corrigan), and the actions of the European parliament (Sharon Bowles), the Commission (Olli Rehn) and the European Securities and Markets Authority (Verena Ross). Click on cartoon for larger image.
Summary
Eurostat ran a series of audits of Greece’s public finances from 2009 to 2010, including for the swap transactions contracted with Goldman Sachs in 2001. These were used to misrepresent, by a few % relative to GDP, the extent of debt and deficits. Eurostat says it only became aware of it in early 2010: this calls for an explanation because news of the contentious transactions broke in 2003. According to the final audit, in 2010, the window dressing scheme initiated in 2001 was significantly restructured in August 2005. Soon after, Goldman Sachs sold its position for cash to the National Bank of Greece. This 2005 modification of the 2001 contract resulted in a 81% increase in the amount of concealed debt, in the accounts of 2006, relative to the initial amount. According to the same audit, Greece willfully misled Eurostat in 2008, when the contracts were still in effect (in fact, they will be until 2037). The national accounts of Greece were regularized by Eurostat in November 2010.
Spokesman for the bank Gerald Corrigan testified before the British parliament in February 2010. He personally vouched that the letter of the law was obeyed in the 2001 deal, suggesting that it was EU’s fault for allowing a loophole in its regulations. To minimize the perception of wrongdoing he reminded the audience that similar practices were age-old and common in the industry. Yet he stonewalled the questions of whether specific countries, Portugal and the UK, respectively, were clients that fell under this category. His leaving out the 2005 restructuring in his testimonial is an odd oversight.
He [Gerald Corrigan] personally vouched that the letter of the law was obeyed in the 2001 deal, suggesting that it was EU’s fault for allowing a loophole in its regulations. In April 2010, former prime minister of Belgium Guy Verhofstadt spearheaded a hearing, Greece : the moment of truth. It was held by the Economic and Monetary Affairs Committee of the EU Parliament under Sharon Bowles’ chairmanship. There appears to be a disconnect between the objective and what Sharon Bowles delivered, as we argue further down in relation to ESMA, but another indication of it is that the deposition of the spokesman for Goldman Sachs, Gerald Corrigan, bears no relation to the stated topic (the word Greece is not to be found). This is perhaps an indication of a disconnect between the objective and what Sharon Bowles delivered. We will argue it further below in relation to ESMA. In November 2010, Jean Claude Trichet obstructed the release, requested by Bloomberg, of ECB documents detailing the swap transactions. In May 2011, he went as far as vetoing a legal claim, made by Bloomberg, to reopen these archives. Was his justification, preventing acute market risks, satisfactory?
In August 2011, the Commissioner for Economic and Monetary Affairs, Olli Rehn, to appease the concern of an MEP about the possible connection of Mario Draghi to the falsification of Greek public finance data, misrepresented the evidence contained in a November 2010 Eurostat audit report as to this connection. Recall that Mario Draghi’s hearing in June, just before a vote by the European parliament on his nomination, was, and remains to this day, controversial due to discrepancies between his defense on this issue and verified facts.
The legislative branch, in the U.S., has gone to great length to learn from the mistakes of the financial crisis. In addition it came with evidence based recommendations to pursue criminal investigations that were or have been carried out by federal agencies and the department of justice. In fairness, this process has been stymied by powerful interest groups. Even so, Europe’s response, in comparison, for the case studied here, which is a significant chapter of the Greek debt crisis, looks unfavorable. The hearing Greece : the hour of truth may well have been a pretense, as hinted at. We now argue it further. The Commission and the European parliament would have had the authority to commission ESMA to investigate the matter. Neither Olli Rehn nor Sharon Bowles, it seems, has taken this step. Had it been the case, ESMA would have had the authority, if the conclusion of the investigation called for it, to bring a legal case against any alleged perpetrator of fraud, or delegate that task to national authorities. Instead, ESMA’s stated priorities, under the leadership of its new Executive Director, Verena Ross, are the single rule book, production and analysis of data, and supervising credit rating agencies…
Note : we now use the EU institutions’ convention that ECON stands for Economic and Monetary Affairs.
Eurostat audits
Eurostat is the statistical office the EU Commission, whose current Director General is Walter Radermacher. In Eurostat parlance, a methodological visit is an audit that is undertaken in cases where the Eurostat identifies substantial risks or potential problems with the quality of the data. There were a series of methodological visits to Greece. They began in 2009 and continued through 2010. Three major reports were produced, one on 29 October 2009, the second on 8 January 2010 and the third in November 2010. According to the last one, a series of failings in the institutional arrangements and practical compilation of Greek public finance data. We skimmed through the January report and read the November 2010 report. Only the latter addresses the contentious Greek swaps transaction. It concluded as follows: Taking into account the work carried out [i.e. corrections to misreported data], as described in this report, the latest debt and deficit data for Greece now gives, in Eurostat’s view, an essentially reliable picture, [including for] fiscal data for the years 2006-2009. It is, therefore, an important report as it represents Eurostat’s final opinion on the issue of the Greek swaps contracted with Goldman Sachs.
Greece patently misled it in 2008, claiming that it neither engaged in FOREX swaps, nor in off market swaps. Eurostat’s summary of its dealings with Greece as pertaining to these swaps would be hard to reconcile, prima facie, with the blithely reported claim that the transactions were legal. First, Eurostat says that At the beginning of the year 2010, it became known that Greece had entered in 2001 into currency off-market swap agreements with Goldman Sachs, using an exchange rate different from the spot prevailing one. This is strange, however, because the scheme was reported in 2003 by Risk.net. Perhaps not coincidentally, notes the article, Greece’s credit rating by one of the three major credit rating agencies was raised, that year, from A to A+. Second, Eurostat says that Greece patently misled it in 2008, claiming that it neither engaged in FOREX swaps, nor in off market swaps. These are exactly the type of transactions agreed between Greece and Goldman Sachs in 2001 and, as we see next, were actively managed thereafter. Eurostat’s audit says that in August 2005 a significant restructuring of the swap contract took place. The maturity of the swap was extended from 2019 to 2037. This, together with other modifications, resulted in an increase in the amount of undisclosed Greek debt data, for the portion that is imputable to the deal, from 2.830 bn euros in 2001 [1] to 5.125 bn euros in 2006. It’s a 81% increase. Eurostat adds that [a]lmost at the same time, GS sold its rights and obligations to the National Bank of Greece (NBG, a bank completely privatised in November 2004). As a side note, Mario Draghi was appointed head of Bank Italy in 2006, ending his employment at Goldman Sachs. The latter had begun in 2002, when Goldman Sachs was reportedly the lead manager of Greece’s debt underwriting. His denial of any connection to the deal in a hearing before the ECON Committee in June 2001 remains controversial to this day.
There is no question that the 81% increase in the debt hiding scheme, in 2006, is imputable to the August 2005 modification: the restructuring operations implemented in 2005 and 2008 were in fact the explicit recognition of an increase of the liability (principal amount of the loan) to be recorded as debt of Greece. To complete our coverage of the swap transactions, let us quote Eurostat: [t]he swap was marginally restructured again in late 2008 [and was] securitised in February 2009 via a Special Purpose Vehicle (Titlos) that paid EUR 5.5 billion to the NBG. There is no question that the 81% increase in the debt hiding scheme, in 2006, is imputable to the August 2005 modification : the restructuring operations implemented in 2005 and 2008 were in fact the explicit recognition of an increase of the liability (principal amount of the loan) to be recorded as debt of Greece. The corresponding amount, 5.125 bn euros, persisted until 2007. The 2008 modification pushed it to 5.4 bn euros, and 2009 saw a decrease to 5.281 bn euros. We think the decrease is the result of an amortization scheme kicking in after a grace period of two years mentioned in the report. In 2010, Eurostat assigned these amounts as additions to government debt for the years 2006—2009. Goldman Sachs’ communication
Goldman Sachs Managing Director Gerald Corrigan testified before the House of Commons on February 22, 2010. This came to our attention in an article by Finfacts Ireland, and the transcript is contained in the document Too important too fail, too important to ignore (March 2010). In question 295, for short Q295, he is asked [H]ave banks like Goldman’s not accentuated sovereign risk in countries like Greece by arranging loans for securitisation against future revenue streams that do not appear on the books or currency swaps that have not been calculated at normal exchange rates? To which, Corrigan personally vouches that the transactions were legal : [It] is very clear to me, based on the investigation that I have done over the past few days, that those transactions were very much consistent and comparable with the standards of behaviour and measurement used by the European Community. There was nothing inappropriate. They were in conformity with existing rules and procedures when they were entered into. To back it up, he cites a consultation with Eurostat: When those transactions were entered into personnel from Goldman Sachs consulted with the appropriate authorities at Eurostat, as did, as I understand it, the Government of Greece and, again, there was no indication whatsoever that those transactions were not in line with existing practices, policies and guidelines.
Goldman Sachs identified a flaw in EU rules, in 2001, and exploited it—opportunity. He [Corrigan] has not explicitly answered the question i.e. whether it increased sovereign risk —harm— but, absent his denial, it was implicitly conceded. Finally, he shifts blame on the EU not having stringent enough rules: I should also say that those guidelines and standards were modified in 2007 which suggests that perhaps they were more liberal than they should have been back in 2001. In other words, Goldman Sachs identified a flaw in EU rules, in 2001, and exploited it—opportunity. He has not explicitly answered the question i.e. whether it increased sovereign risk —harm— but, absent his denial, it was implicitly conceded. The rest of his answer is laced with the mitigating factors that these practices have been around for decades, if not centuries and not limited to Goldman Sachs and Greece—rationalization. However, when asked to confirm whether a similar deal was contracted with Portugal (Q296) and Great Britain (Q297), he dodged and could not confirm, respectively, reiterating the above rationalization in each case. The white elephant in the room, in this hearing, is the August 2005 significant restructuring of the swap contract.” That’s keeping in mind that Greece is alleged by Eurostat to have misled it in 2008 about the existence of such transactions. Although Goldman Sachs was no longer the counter party in 2008, it suggests that this modification has gone under the radar from August 2005 until Eurostat looked into the matter in 2010.
Let’s review some traits in Corrigan’s answers. He hinted at what we labeled an opportunity and had recourse to the same rationalization multiple times. These are two of the three factors that fall under the definition of the Fraud Triangle. This is merely superficial but, unfortunately, there is a significant legal precedent attesting of unethical business practices at this company: Goldman Sachs paid half a billion dollars to settle SEC charges that it misled investors in a subprime mortgage product (ABACUS) just as the U.S. housing market was starting to collapse. The third factor is a motive. The transaction generated hundreds of millions of dollars for the firm according to a press release by Bloomberg, EU seeks Greek swaps disclosure after ministry probe. The ratio of the upper estimate of the fees (200 millions euros) to the amount of Greek debt masked under the 2001 deal (2.830 bn euros) is 7.1%. The key deal maker, Antigone Loudiadis, made a substantial fortune from the deal in just one year, reported the Wall Street Journal in 2010, and enjoyed a career boost thereafter. Incidentally, she made controversial headlines again, reported Bloomberg in May 2011, as CEO of Rothesay Life, as regards to death derivatives.
He [Corrigan] hinted at what we labeled an opportunity and had recourse to the same rationalization multiple times. These are two of the three factors that fall under the definition of the Fraud Triangle. Zero Hedge reported that, on the same day as Corrigan’s testimonial, the bank issued a communique. It essentially summarizes his arguments, with a few more figures but, again, makes no mention of the 2005 restructuring. Finally, Gerald Corrigan’s written statement does not address any of the above. Obstruction by Jean Claude Trichet
First, Bloomberg filed a request with the ECB in November 2010 to have access to ECB internal documents detailing the contentious transactions. It was denied. Second, Bloomberg contested the decision at the EU’s General Court in Luxembourg in December 2010. Third, the ECB asked the General Court to dismiss the lawsuit, in May 2011, just one month before Mario Draghi’s nomination, apparently using a veto prerogative. That’s one month before the nomination of the next ECB President whose possible role in the falsification of Greek debt as Goldman Sachs VP from 2002 to 2005 was raised by Simon Johnson as early as February 2010. Fourth, Bloomberg reacted in June 2011 with these words : The European Central Bank allowed itself to be deceived by a default in the making and now refuses to share with the taxpaying citizens it represents the details of the deception. Secret and opaque financing got Europe into a mess that can only be resolved by the transparency of full disclosure.
The European parliament
As a member of the UK’s Liberal Democratic Party, Sharon Bowles is also affiliated with the Alliance of Liberals and Democrats of Europe, in short ALDE. In March 2010, the former prime minister of Belgium and group leader of ALDE, Guy Verhofstadt, made a proposal to to promptly convene a public hearing of all those implicated in the falsification of Greek public accounts. He followed up with a declaration on 14 April 2010, reported in a press release known as Greece: the moment of truth, for Sharon Bowles to ask Director General of Eurostat to explain how accounts could have been legally modified and what measures were taken in the aftermath to prevent such actions. This was supposed to be discussed in a hearing, the same day, titled The fiscal crisis in the European Union – lessons from Greece. According to the ECON Committee’s final draft programme, its participants were Sharon Bowles (moderator), Olli Rehn, Walter Radermacher, Gerald Corrigan, and a representative from a financial derivatives organization (ISDA), Richard Metcalfe. We did not find the transcript of the hearing at EU Parliament’s portal, which is unfortunate, but we did find the deposition of Gerald Corrigan. It contains insights on two subjects and nothing more. The first is perspective on government debt management, such as the benefits of issuing debt through primary dealers. The second is facilitating derivatives market surveillance, which recounts the initiatives of the financial industry policy group chaired by Corrigan, the Counterparty Risk Managment Policy Group (CRMPG). This hardly addresses Guy Verhofstadt’s injunction, quoted in the press release Greece: the moment of truth : The chairman of Goldman Sachs in the US in particular should justify his bank’s speculation against Greek sovereign debt and the motivation of the investment bank which did not seem to be entirely based on economic considerations.
“widespread misreporting of deficit and debt data by the Greek authorities during in November 2004, [...] and on five occasions between 2005 and 2009.“ Eurostat audit January 2010 The topic reemerged in a parliamentary debate about Quality of statistical data in the Union and enhanced auditing powers by the Commission, on 15 June 2010. To frame it, we suppose, Sharon Bowles posted on 4 June 2010 the question of “whether any [Member States] have submitted falsifications or false data or statistics either intentionally or by neglect?” The January 2010 audit had already answered that question for Greece: widespread misreporting of deficit and debt data by the Greek authorities during in November 2004, [...] and on five occasions between 2005 and 2009.” “In short, there is circumstantial evidence that the chair of the ECON Committee, Sharon Bowles, around 2010, was lagging behind Eurostat’s methodological visits to Greece. To conclude this section, former PM of Belgium Guy Verhofstadt’s high hopes, Greece : the moment of truth, in April 2010, may have fallen flat; that is, the EU parliament failed to deliver an account of who did what?
The Commission
In ECON Commissioner Olli Rehn‘s words spoken during the aforementioned 15 June 2010 debate, the closest match to Sharon Bowles’ question was As is well known, the Commission has undertaken in-depth work on Greek statistics over several years. The amended regulation should, in future, better mitigate the risk of fraud or manipulation of statistics, or of any other kind of irregularity. Yesterday, there was a new development concerning Greece. You will know that Moody’s decided to downgrade Greek bonds yesterday. On 21 July 2011, a parliamentary question was addressed to him, on the subject of Appointment of Mario Draghi as President of the European Central Bank. This question was : Does the Commission have information on Mario Draghi’s involvement, whilst he was Goldman Sachs’ European vice-chair, in the dealings between the bank and the Greek Government over the concealment of accountancy fiddles? Olli Rehn’s answer, on 22 August 2011, was that transactions in derivatives between the Greek debt agency and Goldman Sachs dated back to 2001, implying that the President of the ECB had no connection to them. This is one of the two arguments presented by Mario Draghi before the ECON Committee in June, just before the vote on his nomination, that were found to be unsatisfactory. Olli Rehn backs up his claim by citing the November 2010 Eurostat audit. This is perplexing because the audit reveals that the terms of the contract between Goldman Sachs and the Greek Ministry of Finance were modified in August 2005. This modification resulted in an 81% increase in the amount of debt concealed through this type of scheme. Presumably, Mario Draghi still worked at Goldman Sachs at the time, since his term of office at the Central Bank of Italy started in January 2006.
In short, in August 2011, the Commissioner for ECON either misled the MEP (Willy Meyer) having some concern about Mario Draghi’s past at Goldman Sachs, or had superficial knowledge of the Eurostat audit he cited as evidence in defense of Mario Draghi’s reputation.
Has justice run its normal course?
Let’s try to understand by looking at a comparable case, the United States, where the financial lobby is nonetheless powerful. The above mentioned settlement with the SEC in July 2011 marked the end of a civil lawsuit that had begun in April 2010. On 30 April 2011, Reuters reported that federal prosecutors in New York had begun a criminal investigation into other transactions, upon referral by the SEC. In parallel, the Senate Permanent Subcommittee on Investigations, for short PSI, was investigating the financial crisis. It’s outcome, a bipartisan report, known as the Levin-Coburn report, was released in April 2011. According to the Wall Street Journal, it asked for bank regulators to examine mortgage-related securities to identify any possible legal violations and use Goldman Sachs as a case study in implementing conflict prohibitions. October 2011, the aforementioned federal investigation, in New York, reportedly materialized with $1bn lawsuit against the bank, using evidence of investment bank abuses from the Levin-Coburn Report: Timberwolf was cited in a scathing U.S. Senate panel report in April that faulted Goldman, Deutsche Bank AG and others for hawking debt they expected to perform poorly..
Is the system of government fundamentally different in Europe, in this respect? Of course not. The equivalent of the SEC, in the EU, is the European Securities Markets Authority, for short ESMA, formerly the CESR. It has only recently been granted enforcement authority known as level 4 of its governing procedure. Yet, it can issue a recommendation to a national authority[to carry out legal action]. To do so, ESMA must first carry out an investigation. According to the same provision (level 4), the European parliament (Sharon Bowles), or the Commission (Olli Rehn) can request ESMA to get it under way.
The falsification of Greek debt, based on what was said thus far, and the fact that Goldman Sachs did not disclose it (See February 2010 Bloomberg article), presumably constitutes a fairly obvious breach of their fiduciary duty as a primary dealer—a privileged position in the market. Is anyone aware of Sharon Bowles or Olli Rehn launching an investigation into this scheme? Let’s try to find out.
But in view of what precedes, there is reason to suspect that authorities have turned a blind eye to the problem. [referring to the falsification of Greek debt] In October 2011, a new Executive Director of ESMA, Verena Ross, was nominated, with the ECON Committee’s approval. She gave a keynote speech to that effect in October 2011, in which she laid out her vision of the future focus of the work [of ESMA]. A lot has to do with harmonizing rules and processes across member states [2]. None of it addresses the glaring priority of bringing to justice the suspected perpetrators of financial crime. If Verena Ross’ speech is to be taken at its word, the future focus of ESMA has a negative connotation: turn the page and pretend that financial crime never happened. In fairness, there were reports of a possible probe into this bank’s activities by the UK’s FSA and Bafin in Germany in the first half of 2010, but nothing specific about the falsification of Greek debt that we are aware of. There was, however, a specific reference to that effect, in the US, by Fed Chairman Bernanke in the same period. We can’t be certain that these investigations have stalled, or were put to rest. But in view of what precedes, there is reason to suspect that authorities have turned a blind eye to the problem. Some financial experts allege a broader cynical scheme undertaken by the bank, that is reminiscent of its practices in the subprime crisis. Essentially, these are hedging and speculative bets using insider knowledge of Greek public finances. Let’s briefly review the literature. In February 2010, two authors, Marshal Auerback and L. Randall Wray alleged that From 2001 through November 2009 [...] not only did Goldman and other financial firms help and encourage Greece to take on more debt, they also brokered credit default swaps on Greece’s debt—making income on bets that Greece would default. No doubt they also took positions as the financial conditions deteriorated—betting on default and driving up CDS spreads. Corroborating evidence and analysis can be found in the following articles, listed in in chronological order : What about Greece and Goldman Sachs (Diplomatic World, Spring 2010), Clearing the air: Goldman Sachs and Greece (Hellenesonline, January 2011) and Goldman bet against entire European nations —who were clients— the same way it bet against its subprime mortgage clients (Washington’s blog, July 2011).
Notes
[1] The masking scheme is the combination of two sets of swaps. In the first set, a currency swap neutralizes Greece’s currency risk resulting from preexisting foreign denominated debt: In 2001 a series of off-market cross-currency swaps were effectively linked to underlying debt instruments issued on foreign markets. This would have been standard practice, except for this clause: the contracts were not based on the prevailing spot market rates of exchange [such that] the Greek government debt was de facto [immediately] reduced by EUR 2.4 billion by the conversion process. The second contains off-market interest swaps that are equivalent to a promise by Greece to make a stream of payments to Goldman Sachs. This second set was designed to offset the gain for Greece resulting from the first set, such that its impact on debt and deficit, we must assume, would be gradual and slow.
I want to encourage people to pay attention to a subject that bores everyone but is the source of the looting of US government coffers and individual's pockets. The Federal Reserve and Wall Street frauds. We need to know all of this CAN be reversed. The economy is closer to collapse yet again by the same people playing the same games and all of it illegal. So, let's review what caused the crash of 2008 to see how it relates to what will bring the economy down in 2015. Remember, these economic policies started when Reagan/Clinton took the Republican and Democratic Parties to neo-liberalism. The goal back then was to dismantle all of the public structures built for strong 1st world country to create the wealth inequity that goes with empire-building. The same was happening in Europe and the UK. This is why Maryland has no public justice or oversight and accountability today----all of this boom and bust is no accident----it is all about wealth redistribution to the top.
Clinton deregulated and broke the Glass Steagall to set the stage for this explosive growth of US corporations with no overight and Bush simply allowed for an 'anything goes' environment. Reagan/Clinton/Bush working with Alan Greenspan and Wall Street. Greenspan/Geithner allowed open fraud and corruption in the financial markets and Bush made sure the US Justice Department and financial agencies aided and abetted these crime. The goal was transferring real estate from citizens to the banks through foreclosure so to control development especially in urban centers like Baltimore as well as sending trillions of dollars in government funding for these subprime loans to the banks.
'We didn't see that coming' said Greenspan. Meanwhile, neo-liberals at the state and local levels were allowing the subprime mortgage fraud go wild. This same thing happened in Europe as subprime mortgage loans filled their economy as well. It was Obama's job to make sure the money stayed with those committing the fraud.
The constant portrayal of this Visigoth looting as creating homeownership for low-income people -----knowing a collapse would send people into foreclosure-----shows the social pathology driving Wall Street and neo-liberals and neo-cons.
IT IS NOT LEGAL FOR ANYONE TO ALLOW OPEN FRAUD AND CORRUPTION AND GREENSPAN WAS ALLOWED TO JUST FADE AWAY FOR ONE OF THE GREATEST CRIMES IN HISTORY.
This was no maestro---he simply used people's faith in government and Rule of Law and sold people in investing in a system he knew would blow up making most people losers. Think what is happening today---media is telling you the market is strong, politicians are throwing pensions into it and we all know it is getting ready to crash....and in 2015 we will hear O'Malley and Rawlings Blake who are loading the state with debt just as they oversaw the subprime mortgage fraud----'I didn't see that coming'!
WELL, WE SEE IT COMING AND IT IS INFUSED WITH PUBLIC MALFEASANCE AND FRAUD.
Alan Greenspan: Public Enemy Number One
By Stephen Lendman Global Research, October 27, 2008
With so many good choices, it’s hard just picking one. But given the gravity of today’s financial crisis, one name stands out above others. The “maestro,” as Bob Woodward called him in his book by that title. The “Temple of Boom” chairman, according to a New York Times book review. Standing “bestride the Fed like a colossus.” Now defrocked as the “maestro” of misery. Alan Greenspan. From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn’t Federal and has no reserves.
It represents bankers who own it. Big and powerful ones. Not the state or public interest. It prints money. Controls its supply and price. Loans it out for profit and charges the government interest it wouldn’t have to pay if Treasury instead of Federal Reserve notes were issued. People, as a result, pay more in taxes for debt service. The nation is more crisis-prone. Over time they increase in severity. The current one the most serious since the Great Depression. Potentially the greatest ever. The result of Greenspan’s 18 year irresponsible legacy.
He championed deregulation and presided over an earlier version of today’s crisis. The Reagan-era savings and loan fraud. It bankrupted 2200 banks. Cost taxpayers around $200 billion and for many people their savings in S & Ls they thought safe.
In the 1990s, he engineered the largest ever stock market bubble and bust in history through incompetence, subservience to Wall Street, and dereliction of duty. In January 2000, weeks short of the market peak, he claimed that “the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever….Lofty stock prices have reduced the cost of capital. The result has been a veritable explosion of spending on high-tech equipment….And I see nothing to suggest that these opportunities will peter out anytime soon….Indeed many argue that the pace of innovation will continue to quicken….to exploit the still largely untapped potential for e-commerce, especially the business-to-business arena.”
A week later, the Nasdaq peaked at 5048. Lost 78% of its value by October 2002. The S&P 500 49% from its March 2000 high to its October 2002 bottom. Individual investors were left high and dry as a result. For Mr. Greenspan, it was back to engineering multiple bubbles with 1% interest rates and a tsunami of easy money.
He advocated less regulation, not more. Voluntary oversight. The idea that markets work best so let them. Government intervention as the problem, not the solution. In the mid-1990s, he told a congressional committee:
“Risks in financial markets, including derivative markets, are being regulated by private parties. There is nothing involved in federal regulation per se which makes it superior to market regulation.”
On October 23 before the House Government Oversight and Reform committee, he refused to accept blame for the current crisis, but softened his tone and admitted a “flaw” in his ideology. Confessed his faith in deregulation was shaken. Said he was in a “state of shocked disbelief.” Unclear on what went wrong. Not sure “how significant or permanent it is,” and added:
– “We are in the midst of a once-in-a century credit tsunami (requiring) unprecedented measures;”
– “This crisis has turned out to be much broader than anything I could have imagined;”
– “fears of insolvency are now paramount;”
– significant layoffs and unemployment are ahead;
– a “marked retrenchment of consumer spending” as well;
– containing the crisis is conditional on stabilizing home prices;
– at best, it’s “still many months in the future;”
What went wrong with policies that “worked so effectively for nearly four decades,” he asked? Securitizing home mortgages. “Excess demand” for them, and failure to properly price them he answered. Unmentioned was unbridled greed. The greatest ever fraud. No oversight, and a predictable crisis only surprising in its magnitude and how it grew to unmanageable severity.
Greenspan is now softening on regulation but barely enough to matter. Too little, too late by any standard, and only to restore stability after which chastened investors “will be exceptionally cautious.” In the end, in his view, “This crisis will pass, and America will reemerge with a far sounder financial system.” Until another Fed chairman repeats his mistakes. Creates a crisis too big to contain. Destroys unfettered capitalism as we know it. Changes the world irrevocably as a consequence. Unless this time is the big one and does it sooner.
In March 1999, Greenspan was optimistic at the end of a robust decade (that James Petras calls “the golden age of pillage”) with no worries about new millennium meltdowns. He addressed the Futures Industry Association and said it would be “a major mistake” to increase rules on how banks assess risks when they use derivatives. He added: “By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives.” By a compounded 20% rate throughout the decade. Around 30% alone by banks in 1998. And, according to Greenspan, “The reason that (derivatives) growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risk….the value added of derivatives themselves derives from their ability to enhance the process of wealth creation (and) one counterparty’s market loss is the (other’s) gain.”
Overall, they’ve increased the standard of living of people globally, he claimed. In fact, they contributed to global crises in the 1990s. Hot money in, and meltdowns when it exited. The problem is derivatives work well in bull markets, but are disastrous when they’re down. Going up they do nothing for ordinary people, but during downturns receding tides sink all boats and all in them and aren’t the zero sum game Greenspan suggested.
Worst of all are so-called credit default swaps (CDSs). The most widely traded credit derivative. In the tens of trillions of dollars. A $43 trillion market, according to PIMCO’s Bill Gross. The International Swaps and Derivatives Association (ISDA) estimates it at $54.6 trillion. Down from $62 trillion at yearend 2007. Others place it higher, but key is what they are and how they’re used. They resemble insurance (on risky mortgages), but, in fact, are for little more than casino-type gambling. Unregulated with no transparency in the shadow banking system that dwarfs the traditional one in size and risk.
Gross describes it this way. It “craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.” CDSs are at the center of shadow banking, and Gross and others warn about possible financial Armageddon if things begin collapsing.
A “Cheerleader for Imprudence”
That, according to James Grant, editor of Grant’s Interest Rate Observer. Greenspan’s “biggest mistake was inciting people to do imprudent things.” He called him “marble-mouthed” for his “Greenspeak” and not simply admitting he “was as blind as those (he) pretended to lead. This sense of security that people invested in the idea of perfect control by an all-knowing brain at the top, that idea’s been shattered.”
In July, Grant was outspoken in a Wall Street Journal op-ed titled “Why No Outrage?” He quoted Mary Elizabeth Lease from the Populist era haranguing farmers to “raise less corn and more hell.” He asked why today’s financial victims aren’t protesting Fed policy “of showering dollars on the (monied) people who would seem to (least) need them.” Where are the “uncounted improvident?” Have they “not suffered (enough) at the hands of what used to be called The Interests? Have the stewards of other people’s money not made a hash of high finance? Where is the people’s wrath?” In the wake of the “greatest (ever) failure of ratings and risk management.”
Greenspan’s Fed cut interest rates to 1%. “House prices levitated as mortgage underwriting standards collapsed.” He claimed earlier that property appreciation was a sign of prosperity and a strong economy and “while home prices do on occasion decline, large declines are rare.” Most homeowners experience “a modest but persistent rise in home values that is perceived to be largely permanent.”
Especially, according to Grant, at a time that “credit markets went into speculative orbit, and an idea took hold. Risk….was yesterday’s problem.” It led to “one of the wildest chapters in the history of lending and borrowing.” As a consequence, an $8 trillion home valuation wealth bubble and an unprecedented oversupply of unsold properties. Now in even more oversupply as owners default. Are foreclosed on or simply walk away from unaffordable underwater assets. They sit empty with no one to buy them except for those able in distressed sales.
The whole episode criminal and avoidable had the Fed used its authority under the 1994 Home Ownership and Equity Protection Act. It authorized the central bank to monitor abuses and intervene, if necessary, to prevent abusive lender practices. It failed to do it.
The result was predictable. People and the economy in crisis. Greenspan orchestrated it. His successor Bernanke did nothing to curb it. Wall Street was on a roll until it crashed. Huey Long once compared JD Rockefeller to “the fat guy who ruins a good barbecue by taking too much.” Wall Street thrives on it. Fed largesse enables it. The problem is their indigestion affects everyone. A stomachache spreading round the world. How bad it’ll get and where it stops nobody knows. Blame it on Greenspan. Our “former clairvoyant,” according to Grant.
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Below you hear the same talk as we did in 2006-2007 as the subprime mortgage market began to implode and again it was the FED policy and the Obama Administration/Congress that fueled this crash just as it was Greenspan and Bush with the subprime mortgage loans.
Where last fraud centered on redistributing real estate to the few----this fraud centers on using credit bond and municipal debt to create the excuse to privatize all that is public and end public sector pensions and benefits. The 2015 crash will be so deep with no help from the Federal government still holding $17 trillion in debt from the last massive corporate fraud that the US economy will look like Greece and Spain. It will place the US in the same double-disaster as Europe---subprime loan fraud/sovereign debt fraud.
As the article below states-----hold on to your hats as the market sees a mass exodus from the bond market!!!
Where this article makes it sound that Yellen is being a 'dove'....she has no options....the FED under Bernanke did what the FED under Greenspan did......fed the bond market bubble until there was no return. Remember, Wall Street wants people back in the stock market and blowing up the once safest place to invest, the bond market, will do that. Soon, everyone will be fleeing the bond market as it collapses right back to the stock market. They are making trapped rats of our pension system and giving us no opportunity for a stable economy.
THAT'S A NEO-LIBERAL/NEO-CON FOR YOU!!!!! GET RID OF THEM!!!
Fed Officials Trying to Warn Bond Markets
July 15th, 2014
in contributors
by EconMatters, EconMatters.com
The Purpose of Complacency Talk
The Fed officials have been coming out in speeches the last couple of weeks with rhetoric about 'complacency' and other such code words for chasing risk ahead of what the Federal Reserve knows is going to be an abrupt change in monetary policy over the next six months.
Follow up:
The Fed is concerned because they know they want an orderly transition in markets and not causing major dislocations in markets by massive selloffs. However, the getting is so good with interest free money that participants are going to push this edge they have in markets right up until the last possible exit minute.
So despite the fact that QE ends in October with no more bond buying by the Fed, the 10-Year is still sitting at 2.50% with participants making money hand over fist with the borrow at 15-25 basis points and investing in yield instruments with massive leverage trades that has been so popular and irresistible by investors looking for 'free money arbitrage' opportunities.
An Orderly Unwind
The problem that the Fed has rightly identified is that they are not going to get an orderly exit at this pace, the unwind is going to be massive, jarring, and definitely not 'orderly'! The Bond markets, take the 10-year yield could literally have a 25 or 35 basis point move over a 24 hour period that would wreak a lot of havoc on fund flows, asset classes and financial markets.
This turmoil in the bond market could really be disastrous because the Fed participants realize the bond market isn't being priced currently where the Fed is moving to in terms of monetary policy. The Fed should be alarmed because the unwind is setting up for a possible 100 basis point move in two months' time frame type of fund dislocation and reallocation of capital, and that is going to be problematic for markets!
But the Fed only has themselves to blame for this predicament as in this case you cannot have your cake and eat it too! Janet Yellen cannot be so dovish at Fed news conferences given her reputation as a dove among doves, and get any respect from market participants; the trade is going to be all-in and one-sided without the slightest regard for the risks associated with being so aggressive.
In short, Janet Yellen has encouraged the one thing that Fed governors should always avoid being so 'transparent' that market participants go full boar on a trade, one-sided, highly levered, unhedged, and nothing could possibly happen with this dovish a Fed Chairperson at the helm trade! In a nutshell they have become too 'complacent' or they have taken her dovishness for granted.
Pigs at the Bond Trough
The pattern has been quite clear in Bond Markets wait until after the 200k plus Employment Report blows the 10-Year up to 2.70%, and come in and buy bonds like there is not tomorrow with huge leverage, until they have to get out of the way of the next CPI, GDP or Employment Report - as this process has repeated itself over the last four months of financial markets. The Levered Yield Trade has been the trade of the year so far in 2014 - the strategy of investing in anything with yield from over-valued utilities, pricey bonds and even stodgy low growth Big Caps with some semblance of a dividend yield!
Janet Yellen cannot have her Dovish Cake, and eat it too in the form of an "Orderly Unwind"!
So the Fed has to realize that sending out the mignons of the Fed isn't going to counteract Janet Yellen's dovishness. If they want markets to start unwinding trades ahead of policy adjustments that are coming and not wait until the last possible minute, then Janet Yellen herself is going to have to send a shot across the monetary bow so to speak!
She is going to have to come out with a hawkish tone to garner some healthy respect for normalization of fed policy by markets. She is dovish we get that, but the Fed is about to change monetary policy, and much sooner than is currently priced into many asset classes, and it is going to take some considerable time if participants started repositioning today to unwind many of these massive positions in markets, any sense or orderliness necessitates a little at a time versus all at once!
Janet Yellen has got to start talking hawkish to get this process started otherwise her worst fear is going to materialize in spades as market participants are all going to wait until the last minute trying to make that last dollar on the yield trade, and cause huge market turbulence when they all try to get out at once!
The Data Indicate 1st QTR 2015 Rate Hike at the Latest!
The Employment numbers, the inflation numbers, and the risky valuations in financial markets all point to the Fed needing to start raising rates sometime in the first quarter of next year. This is much sooner than Janet Yellen's Dovish talk has markets pricing in with their forecast for late in 2015 for the first rate hike.
Market participants are far too levered up, all on the same side, and well behind the monetary normalization curve of when the first rate hike is actually going to occur. This is a recipe for disaster, and that seminal light bulb moment in financial markets when everybody realizes, that moment in Margin Call where the analyst drops the ear-buds out saying internally holy shit, that they need to liquidate everything right now. In other words, the entire market all hits the sell button at the same time!
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Wall Street and the FED thinks the steps towards stabilizing the economy have been a success and they are ready for the coming crash. What's not to like---the American people lose all their wealth as the richest wealth soars.
Below you see an article that shows the progression of the plan. Goldman Sachs was key to the financial frauds in the US but were key in bringing down the European social society. They targeted especially Greece and Spain with fraudulent financial instruments loading these nations with huge sovereign debt having the goal of imploding the economies forcing the dismantling of social society. Why this is important to Americans today? It is these same tactics are now coming to the US. We experienced the subprime mortgage fraud in the US as they did in Europe but Europe was brought down harder because a second fraud----sovereign/municipal debt fraud ----completely emptied their government coffers. This is why Europe is in deeper distress than the US. Well, the time is now for the sovereign debt fraud in the US and it looks like levered municipal bond debt, mortgaged tax debt, and state and local money tied to development that cannot be afforded.
THIS MASSIVE DEBT BUILDUP ON THE BACKS OF OUR GOVERNMENT IS WHAT CREATED IN EUROPE THE DEEPEST OF RECESSIONS.
This happened in Europe between 2001 and 2007 and now it is being done here in the US between 2008 and 2015. The subprime mortgage fraud was about taking the American people's wealth-----this coming municipal bond leverage fraud is about taking the government wealth as happened in Europe.
Goldman Sachs and DeutscheBank both created fraudulent financial instruments that allowed government officials to hide their national debt so more debt could be taken. None of this is legal and Goldman Sachs knew it was breaking the law. So Greece and Spain were made to look like the government budgets were balanced when they were ever deeper in debt. Making these governments look like they were AAA mirrored making subprime mortgage loans look AAA. These government officials in Greece and Spain took more and more credit and distributed money to friends and off-shored it until these economies imploded from debt. Europe's TROIKA then came in to make the Greek and Spanish people pay for the fraud just as is happening in the US with the subprime mortgage and other financial frauds. You see Europe's Draghi and his connection to Goldman Sachs overseeing the crisis just as Tim Geithner did in the US.
THE KEY WORDS HERE ARE HIDING SOVEREIGN DEBT TO LOAD MORE DEBT TO MAKE THE IMPLOSION SO DEEP AS TO FORCE THE DISMANTLING OF GOVERNMENT ASSETS.
That is what happened in Europe. Subprime mortgage fraud and sovereign debt fraud. Today, the US economy is ready to implode from sovereign/municipal bond debt. Maryland is ground zero for this. O'Malley and Maryland Assembly and Baltimore City Hall has loaded the state and city with so much leverage in credit bonds and tax deals that when the crash comes in 2015 the public will be stuck with debt so large----just as Greece and Spain---that the recession will be deep and the debt too large, forcing the privatization of all that is public.
THIS IS A PLAN---NOT SIMPLY GREED OR BAD POLICY. 'MARYLAND HAS A 'AAA' RATING FROM MOODY'S YOU SAY'-----you mean the same Moody's that gave subprime mortgage loans the same AAA?
Maryland's economy is one great big shell game. This is not a Democrat vs Republican issue because Republicans are doing the same in their states. It is a complete breakdown of Rule of Law and a rush to take what you can. The article below is long but please glance through to see how Goldman Sachs worked to implode Greece's economy and think about what is happening in Maryland!
Another long article but please glance through.
EU Ignores Falsification of Greek Public Finance Data
Posted on 18 December 2011 by admin by Guest Author ECB Watch
This is a companion to another article to be published Draghi Nomination Based on Deception. Here, we address the broader issue of the falsification of Greece’s public finance data. We will look into Eurostat audits (Walter Radermacher), the ECB’s willful hindrance against the release of records (Jean Claude Trichet), Goldman Sachs’ communication (Gerald Corrigan), and the actions of the European parliament (Sharon Bowles), the Commission (Olli Rehn) and the European Securities and Markets Authority (Verena Ross). Click on cartoon for larger image.
Summary
Eurostat ran a series of audits of Greece’s public finances from 2009 to 2010, including for the swap transactions contracted with Goldman Sachs in 2001. These were used to misrepresent, by a few % relative to GDP, the extent of debt and deficits. Eurostat says it only became aware of it in early 2010: this calls for an explanation because news of the contentious transactions broke in 2003. According to the final audit, in 2010, the window dressing scheme initiated in 2001 was significantly restructured in August 2005. Soon after, Goldman Sachs sold its position for cash to the National Bank of Greece. This 2005 modification of the 2001 contract resulted in a 81% increase in the amount of concealed debt, in the accounts of 2006, relative to the initial amount. According to the same audit, Greece willfully misled Eurostat in 2008, when the contracts were still in effect (in fact, they will be until 2037). The national accounts of Greece were regularized by Eurostat in November 2010.
Spokesman for the bank Gerald Corrigan testified before the British parliament in February 2010. He personally vouched that the letter of the law was obeyed in the 2001 deal, suggesting that it was EU’s fault for allowing a loophole in its regulations. To minimize the perception of wrongdoing he reminded the audience that similar practices were age-old and common in the industry. Yet he stonewalled the questions of whether specific countries, Portugal and the UK, respectively, were clients that fell under this category. His leaving out the 2005 restructuring in his testimonial is an odd oversight.
He [Gerald Corrigan] personally vouched that the letter of the law was obeyed in the 2001 deal, suggesting that it was EU’s fault for allowing a loophole in its regulations. In April 2010, former prime minister of Belgium Guy Verhofstadt spearheaded a hearing, Greece : the moment of truth. It was held by the Economic and Monetary Affairs Committee of the EU Parliament under Sharon Bowles’ chairmanship. There appears to be a disconnect between the objective and what Sharon Bowles delivered, as we argue further down in relation to ESMA, but another indication of it is that the deposition of the spokesman for Goldman Sachs, Gerald Corrigan, bears no relation to the stated topic (the word Greece is not to be found). This is perhaps an indication of a disconnect between the objective and what Sharon Bowles delivered. We will argue it further below in relation to ESMA. In November 2010, Jean Claude Trichet obstructed the release, requested by Bloomberg, of ECB documents detailing the swap transactions. In May 2011, he went as far as vetoing a legal claim, made by Bloomberg, to reopen these archives. Was his justification, preventing acute market risks, satisfactory?
In August 2011, the Commissioner for Economic and Monetary Affairs, Olli Rehn, to appease the concern of an MEP about the possible connection of Mario Draghi to the falsification of Greek public finance data, misrepresented the evidence contained in a November 2010 Eurostat audit report as to this connection. Recall that Mario Draghi’s hearing in June, just before a vote by the European parliament on his nomination, was, and remains to this day, controversial due to discrepancies between his defense on this issue and verified facts.
The legislative branch, in the U.S., has gone to great length to learn from the mistakes of the financial crisis. In addition it came with evidence based recommendations to pursue criminal investigations that were or have been carried out by federal agencies and the department of justice. In fairness, this process has been stymied by powerful interest groups. Even so, Europe’s response, in comparison, for the case studied here, which is a significant chapter of the Greek debt crisis, looks unfavorable. The hearing Greece : the hour of truth may well have been a pretense, as hinted at. We now argue it further. The Commission and the European parliament would have had the authority to commission ESMA to investigate the matter. Neither Olli Rehn nor Sharon Bowles, it seems, has taken this step. Had it been the case, ESMA would have had the authority, if the conclusion of the investigation called for it, to bring a legal case against any alleged perpetrator of fraud, or delegate that task to national authorities. Instead, ESMA’s stated priorities, under the leadership of its new Executive Director, Verena Ross, are the single rule book, production and analysis of data, and supervising credit rating agencies…
Note : we now use the EU institutions’ convention that ECON stands for Economic and Monetary Affairs.
Eurostat audits
Eurostat is the statistical office the EU Commission, whose current Director General is Walter Radermacher. In Eurostat parlance, a methodological visit is an audit that is undertaken in cases where the Eurostat identifies substantial risks or potential problems with the quality of the data. There were a series of methodological visits to Greece. They began in 2009 and continued through 2010. Three major reports were produced, one on 29 October 2009, the second on 8 January 2010 and the third in November 2010. According to the last one, a series of failings in the institutional arrangements and practical compilation of Greek public finance data. We skimmed through the January report and read the November 2010 report. Only the latter addresses the contentious Greek swaps transaction. It concluded as follows: Taking into account the work carried out [i.e. corrections to misreported data], as described in this report, the latest debt and deficit data for Greece now gives, in Eurostat’s view, an essentially reliable picture, [including for] fiscal data for the years 2006-2009. It is, therefore, an important report as it represents Eurostat’s final opinion on the issue of the Greek swaps contracted with Goldman Sachs.
Greece patently misled it in 2008, claiming that it neither engaged in FOREX swaps, nor in off market swaps. Eurostat’s summary of its dealings with Greece as pertaining to these swaps would be hard to reconcile, prima facie, with the blithely reported claim that the transactions were legal. First, Eurostat says that At the beginning of the year 2010, it became known that Greece had entered in 2001 into currency off-market swap agreements with Goldman Sachs, using an exchange rate different from the spot prevailing one. This is strange, however, because the scheme was reported in 2003 by Risk.net. Perhaps not coincidentally, notes the article, Greece’s credit rating by one of the three major credit rating agencies was raised, that year, from A to A+. Second, Eurostat says that Greece patently misled it in 2008, claiming that it neither engaged in FOREX swaps, nor in off market swaps. These are exactly the type of transactions agreed between Greece and Goldman Sachs in 2001 and, as we see next, were actively managed thereafter. Eurostat’s audit says that in August 2005 a significant restructuring of the swap contract took place. The maturity of the swap was extended from 2019 to 2037. This, together with other modifications, resulted in an increase in the amount of undisclosed Greek debt data, for the portion that is imputable to the deal, from 2.830 bn euros in 2001 [1] to 5.125 bn euros in 2006. It’s a 81% increase. Eurostat adds that [a]lmost at the same time, GS sold its rights and obligations to the National Bank of Greece (NBG, a bank completely privatised in November 2004). As a side note, Mario Draghi was appointed head of Bank Italy in 2006, ending his employment at Goldman Sachs. The latter had begun in 2002, when Goldman Sachs was reportedly the lead manager of Greece’s debt underwriting. His denial of any connection to the deal in a hearing before the ECON Committee in June 2001 remains controversial to this day.
There is no question that the 81% increase in the debt hiding scheme, in 2006, is imputable to the August 2005 modification: the restructuring operations implemented in 2005 and 2008 were in fact the explicit recognition of an increase of the liability (principal amount of the loan) to be recorded as debt of Greece. To complete our coverage of the swap transactions, let us quote Eurostat: [t]he swap was marginally restructured again in late 2008 [and was] securitised in February 2009 via a Special Purpose Vehicle (Titlos) that paid EUR 5.5 billion to the NBG. There is no question that the 81% increase in the debt hiding scheme, in 2006, is imputable to the August 2005 modification : the restructuring operations implemented in 2005 and 2008 were in fact the explicit recognition of an increase of the liability (principal amount of the loan) to be recorded as debt of Greece. The corresponding amount, 5.125 bn euros, persisted until 2007. The 2008 modification pushed it to 5.4 bn euros, and 2009 saw a decrease to 5.281 bn euros. We think the decrease is the result of an amortization scheme kicking in after a grace period of two years mentioned in the report. In 2010, Eurostat assigned these amounts as additions to government debt for the years 2006—2009. Goldman Sachs’ communication
Goldman Sachs Managing Director Gerald Corrigan testified before the House of Commons on February 22, 2010. This came to our attention in an article by Finfacts Ireland, and the transcript is contained in the document Too important too fail, too important to ignore (March 2010). In question 295, for short Q295, he is asked [H]ave banks like Goldman’s not accentuated sovereign risk in countries like Greece by arranging loans for securitisation against future revenue streams that do not appear on the books or currency swaps that have not been calculated at normal exchange rates? To which, Corrigan personally vouches that the transactions were legal : [It] is very clear to me, based on the investigation that I have done over the past few days, that those transactions were very much consistent and comparable with the standards of behaviour and measurement used by the European Community. There was nothing inappropriate. They were in conformity with existing rules and procedures when they were entered into. To back it up, he cites a consultation with Eurostat: When those transactions were entered into personnel from Goldman Sachs consulted with the appropriate authorities at Eurostat, as did, as I understand it, the Government of Greece and, again, there was no indication whatsoever that those transactions were not in line with existing practices, policies and guidelines.
Goldman Sachs identified a flaw in EU rules, in 2001, and exploited it—opportunity. He [Corrigan] has not explicitly answered the question i.e. whether it increased sovereign risk —harm— but, absent his denial, it was implicitly conceded. Finally, he shifts blame on the EU not having stringent enough rules: I should also say that those guidelines and standards were modified in 2007 which suggests that perhaps they were more liberal than they should have been back in 2001. In other words, Goldman Sachs identified a flaw in EU rules, in 2001, and exploited it—opportunity. He has not explicitly answered the question i.e. whether it increased sovereign risk —harm— but, absent his denial, it was implicitly conceded. The rest of his answer is laced with the mitigating factors that these practices have been around for decades, if not centuries and not limited to Goldman Sachs and Greece—rationalization. However, when asked to confirm whether a similar deal was contracted with Portugal (Q296) and Great Britain (Q297), he dodged and could not confirm, respectively, reiterating the above rationalization in each case. The white elephant in the room, in this hearing, is the August 2005 significant restructuring of the swap contract.” That’s keeping in mind that Greece is alleged by Eurostat to have misled it in 2008 about the existence of such transactions. Although Goldman Sachs was no longer the counter party in 2008, it suggests that this modification has gone under the radar from August 2005 until Eurostat looked into the matter in 2010.
Let’s review some traits in Corrigan’s answers. He hinted at what we labeled an opportunity and had recourse to the same rationalization multiple times. These are two of the three factors that fall under the definition of the Fraud Triangle. This is merely superficial but, unfortunately, there is a significant legal precedent attesting of unethical business practices at this company: Goldman Sachs paid half a billion dollars to settle SEC charges that it misled investors in a subprime mortgage product (ABACUS) just as the U.S. housing market was starting to collapse. The third factor is a motive. The transaction generated hundreds of millions of dollars for the firm according to a press release by Bloomberg, EU seeks Greek swaps disclosure after ministry probe. The ratio of the upper estimate of the fees (200 millions euros) to the amount of Greek debt masked under the 2001 deal (2.830 bn euros) is 7.1%. The key deal maker, Antigone Loudiadis, made a substantial fortune from the deal in just one year, reported the Wall Street Journal in 2010, and enjoyed a career boost thereafter. Incidentally, she made controversial headlines again, reported Bloomberg in May 2011, as CEO of Rothesay Life, as regards to death derivatives.
He [Corrigan] hinted at what we labeled an opportunity and had recourse to the same rationalization multiple times. These are two of the three factors that fall under the definition of the Fraud Triangle. Zero Hedge reported that, on the same day as Corrigan’s testimonial, the bank issued a communique. It essentially summarizes his arguments, with a few more figures but, again, makes no mention of the 2005 restructuring. Finally, Gerald Corrigan’s written statement does not address any of the above. Obstruction by Jean Claude Trichet
First, Bloomberg filed a request with the ECB in November 2010 to have access to ECB internal documents detailing the contentious transactions. It was denied. Second, Bloomberg contested the decision at the EU’s General Court in Luxembourg in December 2010. Third, the ECB asked the General Court to dismiss the lawsuit, in May 2011, just one month before Mario Draghi’s nomination, apparently using a veto prerogative. That’s one month before the nomination of the next ECB President whose possible role in the falsification of Greek debt as Goldman Sachs VP from 2002 to 2005 was raised by Simon Johnson as early as February 2010. Fourth, Bloomberg reacted in June 2011 with these words : The European Central Bank allowed itself to be deceived by a default in the making and now refuses to share with the taxpaying citizens it represents the details of the deception. Secret and opaque financing got Europe into a mess that can only be resolved by the transparency of full disclosure.
The European parliament
As a member of the UK’s Liberal Democratic Party, Sharon Bowles is also affiliated with the Alliance of Liberals and Democrats of Europe, in short ALDE. In March 2010, the former prime minister of Belgium and group leader of ALDE, Guy Verhofstadt, made a proposal to to promptly convene a public hearing of all those implicated in the falsification of Greek public accounts. He followed up with a declaration on 14 April 2010, reported in a press release known as Greece: the moment of truth, for Sharon Bowles to ask Director General of Eurostat to explain how accounts could have been legally modified and what measures were taken in the aftermath to prevent such actions. This was supposed to be discussed in a hearing, the same day, titled The fiscal crisis in the European Union – lessons from Greece. According to the ECON Committee’s final draft programme, its participants were Sharon Bowles (moderator), Olli Rehn, Walter Radermacher, Gerald Corrigan, and a representative from a financial derivatives organization (ISDA), Richard Metcalfe. We did not find the transcript of the hearing at EU Parliament’s portal, which is unfortunate, but we did find the deposition of Gerald Corrigan. It contains insights on two subjects and nothing more. The first is perspective on government debt management, such as the benefits of issuing debt through primary dealers. The second is facilitating derivatives market surveillance, which recounts the initiatives of the financial industry policy group chaired by Corrigan, the Counterparty Risk Managment Policy Group (CRMPG). This hardly addresses Guy Verhofstadt’s injunction, quoted in the press release Greece: the moment of truth : The chairman of Goldman Sachs in the US in particular should justify his bank’s speculation against Greek sovereign debt and the motivation of the investment bank which did not seem to be entirely based on economic considerations.
“widespread misreporting of deficit and debt data by the Greek authorities during in November 2004, [...] and on five occasions between 2005 and 2009.“ Eurostat audit January 2010 The topic reemerged in a parliamentary debate about Quality of statistical data in the Union and enhanced auditing powers by the Commission, on 15 June 2010. To frame it, we suppose, Sharon Bowles posted on 4 June 2010 the question of “whether any [Member States] have submitted falsifications or false data or statistics either intentionally or by neglect?” The January 2010 audit had already answered that question for Greece: widespread misreporting of deficit and debt data by the Greek authorities during in November 2004, [...] and on five occasions between 2005 and 2009.” “In short, there is circumstantial evidence that the chair of the ECON Committee, Sharon Bowles, around 2010, was lagging behind Eurostat’s methodological visits to Greece. To conclude this section, former PM of Belgium Guy Verhofstadt’s high hopes, Greece : the moment of truth, in April 2010, may have fallen flat; that is, the EU parliament failed to deliver an account of who did what?
The Commission
In ECON Commissioner Olli Rehn‘s words spoken during the aforementioned 15 June 2010 debate, the closest match to Sharon Bowles’ question was As is well known, the Commission has undertaken in-depth work on Greek statistics over several years. The amended regulation should, in future, better mitigate the risk of fraud or manipulation of statistics, or of any other kind of irregularity. Yesterday, there was a new development concerning Greece. You will know that Moody’s decided to downgrade Greek bonds yesterday. On 21 July 2011, a parliamentary question was addressed to him, on the subject of Appointment of Mario Draghi as President of the European Central Bank. This question was : Does the Commission have information on Mario Draghi’s involvement, whilst he was Goldman Sachs’ European vice-chair, in the dealings between the bank and the Greek Government over the concealment of accountancy fiddles? Olli Rehn’s answer, on 22 August 2011, was that transactions in derivatives between the Greek debt agency and Goldman Sachs dated back to 2001, implying that the President of the ECB had no connection to them. This is one of the two arguments presented by Mario Draghi before the ECON Committee in June, just before the vote on his nomination, that were found to be unsatisfactory. Olli Rehn backs up his claim by citing the November 2010 Eurostat audit. This is perplexing because the audit reveals that the terms of the contract between Goldman Sachs and the Greek Ministry of Finance were modified in August 2005. This modification resulted in an 81% increase in the amount of debt concealed through this type of scheme. Presumably, Mario Draghi still worked at Goldman Sachs at the time, since his term of office at the Central Bank of Italy started in January 2006.
In short, in August 2011, the Commissioner for ECON either misled the MEP (Willy Meyer) having some concern about Mario Draghi’s past at Goldman Sachs, or had superficial knowledge of the Eurostat audit he cited as evidence in defense of Mario Draghi’s reputation.
Has justice run its normal course?
Let’s try to understand by looking at a comparable case, the United States, where the financial lobby is nonetheless powerful. The above mentioned settlement with the SEC in July 2011 marked the end of a civil lawsuit that had begun in April 2010. On 30 April 2011, Reuters reported that federal prosecutors in New York had begun a criminal investigation into other transactions, upon referral by the SEC. In parallel, the Senate Permanent Subcommittee on Investigations, for short PSI, was investigating the financial crisis. It’s outcome, a bipartisan report, known as the Levin-Coburn report, was released in April 2011. According to the Wall Street Journal, it asked for bank regulators to examine mortgage-related securities to identify any possible legal violations and use Goldman Sachs as a case study in implementing conflict prohibitions. October 2011, the aforementioned federal investigation, in New York, reportedly materialized with $1bn lawsuit against the bank, using evidence of investment bank abuses from the Levin-Coburn Report: Timberwolf was cited in a scathing U.S. Senate panel report in April that faulted Goldman, Deutsche Bank AG and others for hawking debt they expected to perform poorly..
Is the system of government fundamentally different in Europe, in this respect? Of course not. The equivalent of the SEC, in the EU, is the European Securities Markets Authority, for short ESMA, formerly the CESR. It has only recently been granted enforcement authority known as level 4 of its governing procedure. Yet, it can issue a recommendation to a national authority[to carry out legal action]. To do so, ESMA must first carry out an investigation. According to the same provision (level 4), the European parliament (Sharon Bowles), or the Commission (Olli Rehn) can request ESMA to get it under way.
The falsification of Greek debt, based on what was said thus far, and the fact that Goldman Sachs did not disclose it (See February 2010 Bloomberg article), presumably constitutes a fairly obvious breach of their fiduciary duty as a primary dealer—a privileged position in the market. Is anyone aware of Sharon Bowles or Olli Rehn launching an investigation into this scheme? Let’s try to find out.
But in view of what precedes, there is reason to suspect that authorities have turned a blind eye to the problem. [referring to the falsification of Greek debt] In October 2011, a new Executive Director of ESMA, Verena Ross, was nominated, with the ECON Committee’s approval. She gave a keynote speech to that effect in October 2011, in which she laid out her vision of the future focus of the work [of ESMA]. A lot has to do with harmonizing rules and processes across member states [2]. None of it addresses the glaring priority of bringing to justice the suspected perpetrators of financial crime. If Verena Ross’ speech is to be taken at its word, the future focus of ESMA has a negative connotation: turn the page and pretend that financial crime never happened. In fairness, there were reports of a possible probe into this bank’s activities by the UK’s FSA and Bafin in Germany in the first half of 2010, but nothing specific about the falsification of Greek debt that we are aware of. There was, however, a specific reference to that effect, in the US, by Fed Chairman Bernanke in the same period. We can’t be certain that these investigations have stalled, or were put to rest. But in view of what precedes, there is reason to suspect that authorities have turned a blind eye to the problem. Some financial experts allege a broader cynical scheme undertaken by the bank, that is reminiscent of its practices in the subprime crisis. Essentially, these are hedging and speculative bets using insider knowledge of Greek public finances. Let’s briefly review the literature. In February 2010, two authors, Marshal Auerback and L. Randall Wray alleged that From 2001 through November 2009 [...] not only did Goldman and other financial firms help and encourage Greece to take on more debt, they also brokered credit default swaps on Greece’s debt—making income on bets that Greece would default. No doubt they also took positions as the financial conditions deteriorated—betting on default and driving up CDS spreads. Corroborating evidence and analysis can be found in the following articles, listed in in chronological order : What about Greece and Goldman Sachs (Diplomatic World, Spring 2010), Clearing the air: Goldman Sachs and Greece (Hellenesonline, January 2011) and Goldman bet against entire European nations —who were clients— the same way it bet against its subprime mortgage clients (Washington’s blog, July 2011).
Notes
[1] The masking scheme is the combination of two sets of swaps. In the first set, a currency swap neutralizes Greece’s currency risk resulting from preexisting foreign denominated debt: In 2001 a series of off-market cross-currency swaps were effectively linked to underlying debt instruments issued on foreign markets. This would have been standard practice, except for this clause: the contracts were not based on the prevailing spot market rates of exchange [such that] the Greek government debt was de facto [immediately] reduced by EUR 2.4 billion by the conversion process. The second contains off-market interest swaps that are equivalent to a promise by Greece to make a stream of payments to Goldman Sachs. This second set was designed to offset the gain for Greece resulting from the first set, such that its impact on debt and deficit, we must assume, would be gradual and slow.
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