What is John Paulson doing in Greece?

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?

News of Paulson’s fund taking large positions against Greek debt has barely risen above rumor in the English-language press, despite this article in a Greek daily, which says that Paulson is “orchestrating the pressure on Greek government bonds and the Euro,” and reports that Paulson has a team of 20-30 traders focused on Greece.

Protests in Greece
In Greece, protesters rally against the government's austerity measures. The banner reads "We are struggling to live."

A research firm is now calling Paulson the George Soros of derivatives markets, where the bulk of speculation against European debt and the Euro is happening; the Telegraph says that so far “no hedge fund has put its head above the parapet in this destructive trade,” but the rumor is that Paulson is behind it.

If Paulson is the hedge fund king behind the parapet, as rumored in English and reported in Greek, then it would seem fairly likely that Paulson and Goldman partnered — colluded? — to build profitable short positions against Greek debt.   That Goldman was shepherding hedge fund client Paulson around Athens in recent weeks would seem to suggest that the bank and hedge fund are working together in Greece.

Paulson and Goldman have partnered before — on the subprime short trades that won them enormous profits in the midst of the housing crisis.  Those trades have gotten a lot of attention, but the fact that Paulson and Goldman worked together to make it all happen has received much less ink.  The story of Paulson’s investments is detailed in Gregory Zuckerman’s book, The Greatest Trade Ever.  Goldman plays a prominent role, setting up the CDOs that Paulson would wager against, and then selling them to investors.  The star Goldman trader who placed the bank’s winning bets against the subprime market, Josh Birnbaum, was reportedly in frequent contact with Paulson, at one point encouraging him to back off his bets (perhaps to make more room for Goldman).

Since Paulson was in the room with Goldman (and several other banks) when these CDOs were first conceived, it would seem that the fund had an unfair edge over the investors that would lose their shirt buying the securities.  Zuckerman notes that Deutsche Bank suffered losses because it couldn’t find takers; that famous taker, AIG, may have been Goldman’s convenient solution.

These parallels raise obvious questions:  was Paulson also in the room with Goldman before it tried to sell Greece on a new way to hide its debt this past November?  As a hedge fund client of Goldman’s, did Paulson have special information about Greece’s true debt situation?  Are Goldman and Paulson partnering, once again, to profit from the downfall of an entire country/continent?

23 thoughts on “What is John Paulson doing in Greece?”

  1. Lenin said Capitalists will sell them the rope to hang us. Hell, we don’t need Lenin at all. We’ll short sell ourselves the rope and rush to cover when the trap door opens!

  2. I’m sorry but there is an element of bullshit in this story. Consider the fact that people have been talking about “Greece” since before October/November last year – at least following the Dubai affair. If laymen like myself could smell something fishy with the PIIGs that far back, then why is it crazy that a financial industry participant would position themselves to benefit?

    Claiming collusion between Paulson and Goldman seems not so much far-fetched as a bit circumstantial.

    This is just my opinion – but I get the feeling that this ‘conspiracy’ talk goes a little too far ahead of itself. Back this up with some hard primary evidence, instead of books and articles supporting your thesis.

  3. What is the difference between circumstance and collusion? This financial world at the top level is very small and interconnected…..

  4. “This is just my opinion – but I get the feeling that this ‘conspiracy’ talk goes a little too far ahead of itself. ”

    Thank you for your comment, Mr. Paulson. We already knew you’d try to discredit any criticisms of yourself.

  5. Goldman Sachs is a global criminal financial terrorist organization.

    The greatest heist in history is playing out around the world. The international financial banksters no longer cares who even knows how much they are stealing.

    They are out of control.

    Peoples need to take back their governments, round up the criminals, dismantle their ponzi schemes and throw away the keys once they’ve locked up the criminals.

  6. Well, don’t sell the Conquistador conquests of ALL of Central & South America short….
    or the Roman anhilations of Carthage, much of Gaul, Celtic tribes, Germanic tribes (etc.)
    …or of course the Mongol conquests…
    or the Japanese conquests of WWII….

    but according to Prof. Michael Hudson, (quoting Russian authorities), “more people died in Russia of post Cold War “Rubinomics” -the Harvard/Larry Summers/GoldmanSachs/JPM “Neo-Liberal” assault on the post communist economies – than Russia lost in all of WWI from the German invasion. !
    (as measured by a 10 year decline in longevity, economic stress related diseases, suicides, lack of medical attention, lack of heating, etc. etc. etc.)

  7. OBAMA and Bernanke are featured in a movie– about greedy hedge funds called “Stock Shock.” Even though the movie mostly focuses on Sirius XM stock being naked short sold nearly into bankruptcy (5 cents/share), I liked it because it exposes the dark side of Wall Street and revealed some of their secrets. DVD is everywhere but cheaper at http://www.stockshockmovie.com

  8. Lenin said a capitalist is someone who would sell you the rope to HIS OWN hanging.
    Now that is homoeconomicus.

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  10. Well, it seems like (honest) politicians, and then justice must take immediate action against scams… Even if these scams are BIG companies, or BIG hedge fund managers.
    Maddoff did something outrageous. And illegal. These two – Paulson and Goldman Sachs – seem to have done something far more illegal – and dangerous. In the case of Maddoff, some billionaires and millionaires were the victims of the scam. But in this case, millions of Americans lost their pension (see AIG scandal), now millions of Greeks lose their wage and pension, and later… who knows how many millions of who will lose what…
    I think things are clear. This is a scam, a scandal and some people have to go to jail, if we still want to say we are a democratic society. These people and organizations are dangerous for the public interest. A thorough examination is terribly needed, before the thing gets worse for million of Americans, or Greeks, or who’s next.

  11. hey! wake up!
    mr Marc Aubrey, it smells like slippers where you are 🙂
    U think you’re in control and Goldman and Paulson and others are OUT OF conrol… and we need simply to investigate (thoroughly) and punish somebody/anybody
    I envy you! 🙂

  12. Hey just wanted to give you a quick heads up. The words in your post seem to be running off the screen in Firefox. I’m not sure if this is a format issue or something to do with internet browser compatibility but I thought I’d post to let you know. The design and style look great though! Hope you get the issue fixed soon. Many thanks Immobilienfinanzierung Rechner

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