Following my writing on the rumors swirling around Goldman Sachs, John Paulson, and their role in speculative attacks on Greece, the New York Times has written about the rumors, and today reports that Greece’s National Intelligence Service has named several other investors who are shorting Greek debt: Brevan Howard, Fidelity International, and Moore Capital, in addition to Paulson & Co. The Greek daily EYP is also reporting that the agency named PIMCO, as well.
That the names of potential speculators are only identified after the Greek National Intelligence Service begins investigating them points to just how corrupt this system is; the complete lack of transparency in this “free market” forces us to rely on a *government spy agency* for information about who is making these trades. Brevan Howard, Paulson, and Moore were accused by Spain’s intelligence agency last week. How bizarre.
Brevan Howard has since released a letter to investors saying it is not shorting Greek debt, and Fidelity has commented that it only shorts debt for hedging purposes, according to Reuters. Moore Capital, PIMCO, and Paulson have not commented.
The alleged speculators share some fascinating connections, including strong ties to Goldman Sachs and the New York Fed.
The rumors of a possible partnership by John Paulson and Goldman Sachs in the speculative attacks on Greece, which I first reported on last week, are now heating up in Europe to the point where one French journalist has multiple sources corroborating them. No one can point to hard evidence, just yet, because these are opaque, unregulated markets. But the news is quickly rising above the status of rumor.
The French financial newspaper Les Echos picked up on my post on John Paulson and Greece yesterday. Here is my (rough) translation:
There is a new chapter in the Greek saga today, with news from Bloomberg that Goldman Sachs failed to disclose currency swap deals in Greek bond deals:
Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.
No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.
With this bit of additional detail in the mix, Goldman’s defenders (is that you, Lloyd?) will now have a harder time making the case that the bank was acting properly in its dealings with Greece and the EU. These arguments weren’t particularly strong, to begin with; as is usually the case, those that have risen to Goldman’s defense (John Carney chief among them) have been making broad-brush arguments about standard Wall Street practices (revelation: banks hedge their bets) rather than engaging the details of this particular story or taking into account everything we know about Goldman’s past behavior.
There were, essentially, two superstars of the subprime meltdown — investors that not only won big on bets that the subprime market would crash, but got a lot of media attention for it: John Paulson and Goldman Sachs. Of course, plenty of other investors bet that the market would crash, but none of the trades were as big, and, for whatever reason, they didn’t get as much media attention as Paulson and Goldman.
But while it is frequently noted in the press that Paulson and Goldman profited from the subprime crash, the revelation that they worked together to place these bets has gotten basically zero attention. See this McClatchy series, for instance, which mentions both Goldman and Paulson, but not the fact that Goldman helped Paulson place his bets. The partnership between Goldman and Paulson was first reported in Gregory Zuckerman’s book on Paulson, as I noted yesterday, but the author basically ignores (or fails to recognize) the implications of this news, and it’s gone nowhere.
When the book first came out, however, David Fiderer explored the implications of the Goldman-Paulson partnership in an excellent post on The Moral Compass Missing from the Greatest Trade Ever. Paulson, Fiderer writes, “was dissatisfied. The marketplace had not satiated his appetite for placing bets against subprime mortgage securities. So he cooked up a scheme to issue billions more in new securities designed by him to fail.”
What is John Paulson doing in Greece?
By Kevin Connor • Feb 15, 2010 at 12:29 EST
Goldman Sachs’s Greek adventure got an in-depth look from the New York Times yesterday. The article extends on last week’s Spiegel piece, which reported that the bank helped Greece hide the true extent of its debt through the use of specialized derivative products. We first reported on the parallels between AIG and Greece in a post last week, following the lead of Zero Hedge. Entry into the paper of record means the story now has legs this side of the pond, and MIT economist Simon Johnson is arguing that Goldman Sachs is set to be blacklisted in Europe.
One question looming over this story: did Goldman position itself to profit from the Greek fiasco? Did it use its special knowledge of Greek’s hidden debt to build profitable bets on its future downfall and rescue? If the bank’s past behavior is any guide, the answer is yes. Ignoring the impending catastrophe (obvious from their vantage point), and failing to properly “hedge” (extract massive profits), would have been “irresponsible” (insufficiently greedy/corrupt) on the part of senior management.
Considering this, hedge fund king John Paulson’s role in Greece deserves far more scrutiny. I wrote about this last week, pointing out that they shared the same vulture flight pattern in Greece, but at the time did not realize that Paulson and Goldman actually partnered in executing massive and profitable bets against the subprime market. Are they doing the same with Greece?
Obama shares Wall Street’s delusions
By Kevin Connor • Feb 11, 2010 at 12:55 EST
Via Bloomberg, we learned yesterday that President Obama buys in to the Wall Street delusion that bankers actually deserve really high salaries. Speaking about JP Morgan’s Jamie Dimon and Goldman’s Lloyd Blankfein, he said this:
The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”
“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
Krugman’s reaction, in a blog post titled “Clueless,” pretty much sums it up: “Oh. My. God.”
The quotes paint a picture of a president who is hopelessly out of touch with the economic reality and with the public’s perceptions of Wall Street. He also seems to be experiencing some amnesia regarding the massive, taxpayer-funded bailouts that have sustained the institutions run by these businessmen.
The White House has already started attempting to walk back the comments in a remarkable blog post that purports to clear up what the president “actually” said during the interview. While offering up lengthy presidential quotes about the bonuses, say-on-pay, and so forth that put some of his words in context, the post leaves out what I see as the most important quote in the Bloomberg piece, where he says (about Blankfein and Dimon): “I know both those guys; they are very savvy businessmen.”
Greece: the new AIG?
By Kevin Connor • Feb 09, 2010 at 13:46 EST
With the mounting crisis in Greece, another massive stash of toxic debt has revealed itself in a way that can’t be ignored. Fears of a “contagious default” in the Eurozone hammered markets yesterday, with one Greek banker calling it a “wholesale selling off of the country.” Today, markets are rebounding on hopes for an EU bailout, and around we go again.
Though parallels to Dubai are obvious, Zero Hedge has noted the similarities between Greece and AIG due to the intimate involvement of Goldman Sachs in both crises. Rumor has it that Goldman was a “bulk buyer” of Greek protection, ZH writes, and that thus “it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance.” This is the kind of enormous leverage that helped Goldman take AIG to the cleaners at taxpayers’ expense.
Zero Hedge’s allegations are backed up by rumors, for the most part. But there is no denying that Goldman is mixed up in Greece, between this piece from Spiegel and this recent Financial Times article on Goldman’s prominent role in the Greece “rescue.”
If the allegations are true, Goldman is once again negotiating for a giant pass-through of taxpayer money from a world superpower. There are also signs that the bank is (once again) joined by a network of hedge fund colluders in its efforts.
Money laundering, Goldman-style
By Kevin Connor • Feb 08, 2010 at 11:05 EST
Louise Story and Gretchen Morgenson had a lengthy new story up at the Times yesterday on how Goldman bled AIG to death. The piece details negotiations over payouts on swaps that Goldman had purchased from AIG. Details of the negotiations are interesting, but this paragraph jumped out at me:
In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
It seems that Goldman was even more of a beneficiary of the AIG bailout than we previously thought. Officially, it received more than any other counterparty, but add in the Société payments and headlines that referred to “AIG Trading Partners…” or “AIG Counterparties” would have to be revised to read “Goldman Sachs.”
This is outrageous. When was this arrangement made, and why? Did Goldman use SocGen to hide the extent to which it caused (and benefitted from) the AIG catastrophe? Would the size of its taxpayer-funded bonus pools be threatened by full disclosure of the payments? Like so many other aspects of Goldman’s business, this deserves an investigation.
The Washington Post is reporting that AIG is set to pay $100 million in employee bonuses today:
American International Group plans Wednesday to pay another round of employee bonuses, worth about $100 million, said several people familiar with the matter, a year after similar payments at the bailed-out insurance giant infuriated many Americans and inflamed Washington.
The US government owns 80% of AIG. Lots of figures and percentages appear in the Washington Post article, but that one doesn’t. And while pay czar Ken Feinberg’s name appears throughout the piece — he seems to have played some role in approving these bonuses — the names of the three trustees charged with overseeing the government’s 80% stake are nowhere to be found. Search for their names on Google News, and you find no recent articles mentioning the trustees in the context of this decision. Did they not play a role in this decision?
Searching for Bobby Rubin
By CDouglas • Feb 01, 2010 at 16:49 EST
With the Geithner “wunderkind” and Summers “socratic genius” brands badly damaged, Obama faces pressure from a broad and growing spectrum to find new front men for his economic policy team. This was in evidence last week when Paul Volcker and Austan Goolsbee were trucked in from oblivion to champion Obama’s new bank reform agenda.
Volcker and Goolsbee, though they’re only marginally more progressive than Geithner and Summers, present a serious threat to the power network behind Obama’s “bankers bonanza” economic policies. Whereas Summers and Geithner owe their public lives to Robert Rubin–the man behind the curtain in Obama’s first year–Volcker and Goolsbee owe him relatively little, which is presumably why they were banished in the first place. Establishing Volcker and Goolsbee more prominently in the White House coterie would present the first major threat to the Rubin axis in the West Wing, which, in addition to Summers and Geithner, includes administration insiders Peter Orszag, Michael Froman and Jason Furman.