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Step Aside Greece: How Gustavo Piga Exposed Europe's Enron In 2001 - Focusing On Italy's Libor MINUS 16.77% Swap; Was "Counterpart N" A Threat To Piga's Life?

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It is not often that one finds smoking gun reports which refute all claims, such as those by EuroStat and Angela Merkel, in which the offended parties plead ignorance of the fiscal inferno raging around them, kindled by lies, deceit, and blatant mutually-endorsed fraud, and instead, now facing themselves in the spotlight of public fury, put the blame solely on related party participants, such as, in a recent case, Greece and Goldman Sachs. Yet a 2001 report prepared by Gustavo Piga, in collaboration with the Council on Foreign Relations and the International Securities Market Association, not only fits that particular smoking gun description, but the report itself was damning enough of another country, a country which used precisely the same off-market swap arrangement to end up with an interest expense of LIBOR minus 16.77% (in essence the counteparty was paying Italy 16.77% of notional each year as a function of the swap mechanics), in that long ago year of 1995. The country - Italy (for confidentiality reasons referred to in the report as Country M), was at the time panned as the Enron of the European Union due to precisely this kind of off-balance sheet arrangement by the Counsel of Foreign Relations. The counterparty bank: unknown (at least in theory, since the swap was highly confidential, and was referred to as Counterpart N), but considering the critical similarities in the structuring of the swap contract to that used by Greece in 2001, and that ISMA cancelled Piga's press conference discussing his findings out of fear for the academic's life, we can easily venture some guesses as to which banks value their recurring counterparty arrangements more than human life.

And only an idiot (here's looking at you, EuroStat) would miss this striking revelation in the ISMA report made almost 10 years ago, envisioning not only Italy but Greece, which joined the euro on January 1, 2001: "Piga has unearthed some rather striking documentary evidence: an actual swap contract, indicating that one EMU entrant (who, owing to an agreement with the source of the documentation, will remain anonymous) used swaps to mislead other EU governments and institutions as to the size of its budget deficit, so as to falsely suggest compliance with the Maastricht Treaty." Once all is said and done, and both the euro and the eurozone are forgotten history, it will be amusing to observe just how prevalent lies and deceit were in the Eurozone, where apparently it was a daily and thoroughly accepted occurrence to lie, both to others and to oneself, about the real state of financial affairs. Oh, and the "US-zone" which is doing precisely the same complete cover up of its true economic state, is certainly not too far behind.

Disclosures made in this report forced the Council on Foreign Relations to make an explicit comparison between Italy and the greatest corporate fraud of the early 2000's: Enron.

The parallel with the Enron transactions is uncanny. Like Enron,
Italy took on debt but chose to represent it as a hedge for a yen bond
it had issued in May 1995, which matured in September 1998.
As with
Enron, the hedge explanation was clearly misleading. If it had been a
hedge, the exchange rate used would simply have been the market rate at
the time the swap transaction was entered into. Off-market rate swaps
were clearly selected for the purpose of producing interest revenue in
1997, with euro entry as the goal.

The Treasury does not deny this. It justifies it, however, using an
explanation that is in part irrelevant and that in part implicates it

The irrelevant part of the explanation is that the Treasury was
concerned that a yen appreciation could increase Italy's debt, thus
jeopardising the country's hopes of entering the eurozone. So the swaps
were structured to protect against its debt rising over the course of
1997. But Italy's debt was 110 per cent of gross domestic product in
1997, well beyond the 60 per cent Maastricht barrier. The European
Union never intended to enforce the debt limitation, only the annual
deficit limitation. Italy's deficit was forecast to be within striking
distance of the 3 per cent barrier and the swaps legally affected only
the deficit. The debt argument is a red herring.

The damning part of the explanation is the admission that Italy was
taking a cash advance in 1997 against an expected foreign exchange
profit in 1998. Under accounting rules, this is simply impermissible.
Borrowers cannot use loans to anticipate capital gains on a bond.

In other words, cooking the public debt books in the EU started not with Greece and Goldman in 2001, but with Italy and Counteparty N in 1995; we are fully confident that many more examples will emerge shortly.

How widespread is this sort of financial chicanery among sovereign
borrowers? It is very difficult to know, since these deals are done
over the counter with no public paper trail. Gustavo Piga, author of
the ISMA/ CFR report, uncovered the Italian transaction quite
accidentally. But there are powerful reasons for concern.

First, governments have clear incentives to cook the books. The EU
continues to impose fiscal expenditure restrictions on eurozone
governments, violation of which can result in censure and fines. The
International Monetary Fund imposes fiscal conditionality on its client
governments, which naturally have a strong incentive to keep the Fund
from closing the money spigot. Derivatives can be used to shuffle cash
flows through time in ways that current accounting rules do not prevent.

Second, banks are only too willing to market derivatives tricks to
their big client governments
, particularly when it puts them at the
front of the queue for future bond issues and privatisations.

Third, if the integrity of government financial data is fatally
undermined, the damage to stock and bond markets will dwarf the "Enron
effect" that has recently pummelled the Dow.

We urge everyone to reread the last sentence as many times as needed, until the truth sinks in.

Before we get into the implications, here are the "revelations" (even though these have been part of the public record for nearly ten years) about Italy, which is now certain to attract everyone's attention as the source of potential near-term eurozone destabilization.

Below we present the critical section from Piga's report, a must read for all those who are still unsure how governments used banks such as Goldman Sachs to create borderline legal, off-balance sheet swaps to hide their debt:

Setting the stage

This sub-section provides a real-world example of how sovereign borrowers can use derivatives to window-dress public accounts as a means of achieving short-term political goals. It is by no means a theoretical example, but a real swap transaction undertaken by one of the sovereign borrowers cited in this book, which now belongs to the European monetary union.

In what follows we will call this sovereign borrower “M”. The author was given a copy of the swap contract by a public officer of M. This officer works in a public institution in charge of approving the accounting of derivative transactions entered into and recorded by sovereign borrower M. The public officer had no understanding of the nature of this contract and honestly believed he was giving the author a copy of a derivative contract that did not present accounting problems. This also indicates how officers in charge of verifying that sovereign borrowers implement proper accounting procedures sometimes lack the technical expertise to fulfill their duties optimally.

The swap transaction, translated into English and reproduced in the Appendix, was undertaken in 1996 by M solely to reduce the level of interest expenditure in years 1997 and 1998 - two critical years for the EMU process - so as to keep the budget deficit-to-GDP ratio within the 3% level required by the Stability and Growth Pact. As this transaction only helped postpone interest expenditure, one of its consequences was to raise unduly the level of interest expenditure in the years after 1998.

Had proper national accounting procedures been in place, this transaction would have been recorded without allowing window-dressing of public accounts in 1997 and 1998 at the expense of public account balances after 1998. We will demonstrate that M undertook such a swap transaction only to window-dress its accounts. To do so, we will first show in sub section 4.2.b that standard derivative contracts to achieve proper debt management goals were disregarded because they would not help in substantially decreasing interest expenditure in the years 1997 and 1998. Sub-section 4.2.c describes the swap transaction entered into by sovereign borrower M, reveals its window dressing nature, and documents its impact on the public accounts of sovereign borrower M.

Standard active debt management with derivatives

In 1995, M issued an international 3-year and 3-month yen-denominated bond maturing in 1998 with a face value of JPY 200 billion and a yearly coupon of 2.3%. This bond was sold at par. The net proceeds for sovereign borrower M were y unis, where the uni is the fictitious name we will give to the currency in M. The exchange rate on the day the bond was issued was 193.44 unis for JPY 1.

That same day, domestic (uni) interest rates for a similar maturity were higher than yen interest rates. By issuing the yen-denominated bond instead of a domestic bond in unis, the debt office would have paid less interest on its yen-denominated liability. However, any appreciation of the yen over the life of the bond, if realized, would have made yen-denominated payments more expensive once converted into unis. At issuance (barring superior knowledge on the part of sovereign borrower M as to future movements in the yen/uni exchange rate), issuing in yen or in unis would have looked equally costly to sovereign borrower M. Nevertheless sovereign borrower M decided to issue this yen-denominated bond rather than a domestic uni-denominated bond over the 3-year and 3-month maturity. It is likely that sovereign borrower M issued the yen-denominated bond primarily to achieve greater diversification of its bond portfolio.

In 1996, almost one year and six months after the issuance of the yen-denominated bond, the yen had instead substantially depreciated against the uni. The yen traded at 134.1 unis per yen. The yen-denominated bond had at that date a remaining life to maturity of approximately one year and nine months. Had the yen continued to trade at such low levels compared to those of 1995, the debt office in M would definitely have gained from having issued in 1995 in yen rather than in unis. However, at the date when the yen was trading at 134.1 unis per yen, the debt office in M was still exposed to exchange rate changes in the remaining one-year-and-nine-month’s life of the yen-denominated bond. Had the yen substantially appreciated in that remaining period, M’s debt office would have lost some or all of the earlier gains obtained through the initial depreciation of the yen.

It is at this point that active debt management through derivatives could have been used effectively to achieve a specific goal. Imagine that in 1996 when the yen-denominated bond had a one-year and nine-month residual life to maturity, the sovereign borrower M had entered into a standard oneyear and nine-month JPY 200 billion notional amount cross-currency swap. Such a theoretical standard cross-currency swap would have matured in 1998, on the same date the yen-denominated bond matured.

At maturity, the theoretical currency swap would have required M to pay an amount of unis equal to JPY 200 billion multiplied by the market exchange rate on the day the swap was transacted, 134.1 unis for one yen. In exchange, always at maturity, M would have received JPY 200 billion from its counterpart.

During the life of this theoretical cross currency swap, sovereign borrower M would have paid a short-term floating rate in unis to its counterpart while receiving a yen-denominated fixed swap rate. In 1996 the one-year and nine month yen swap-market rate was approximately 0.75%. To be perfectly hedged against exchange rate risk, sovereign borrower M would have received a 2.3% yen fixed rate, or a fixed payment 155 basis points higher, rather than the swap-market rate equal to 0.75%. In exchange for these extra fixed payments, M’s counterpart would clearly have asked to receive from M larger amounts on the floating-rate leg of the swap. M would have thus paid to its counterpart the uni’s Libor rate plus 155 basis points on a uni-notional amount of JPY 200 billion multiplied by the market exchange rate between the yen and the uni (134.1 unis per yen). Figure 4.1 illustrates this theoretical transaction.

After this theoretical transaction, by eliminating currency risk and turning a yendenominated liability at a low value of the yen into a uni-denominated liability, sovereign borrower M would have locked-in a capital gain by having issued, in 1995, in yen rather than in unis. What matters for our purposes is to show that this gain would have, by and large, not affected interest expenditure in 1997 and 1998, but only affected it from 1999 onwards. In this case, the theoretical transaction we are describing would have proved useless in reducing the budget deficit in 1997 and 1998. Where would the savings arising from this theoretical swap have appeared in the budget of M? Recall that after the theoretical cross-currency swap illustrated in Figure. 4.1, M’s liability would have become a synthetic uni-Libor liability on a notional amount in unis (JPY 200 billion converted at the market exchange rate of 134.1 unis for JPY 1). The lower the yen exchange rate established in the swap contract, the lower this liability would have been. M would therefore have had, through this theoretical currency swap, a lower net cash outflow at maturity than the one it would have had by issuing a domestic  uni-denominated bond in 1995.

Such lower cash outflow due to a lower reimbursement of principal would not have affected the interest expenditure of sovereign borrower M in the years when the crosscurrency swap would have been outstanding (i.e., 1996 to 1998). Instead, it would have decreased the public sector borrowing requirement of M in 1998, when the bond and the swap would have expired. Such a lower public sector borrowing requirement in 1998 would have implied a lower public debt in M in 1998, compared to the level of public debt that M would have had to roll over had it instead issued in unis in 1995. In turn, this lower public debt would have implied lower interest expenditure and lower deficits only from 1999 onwards.

Enter "Counterpart N" or, allegedly, Goldman Sachs

Using derivatives to window-dress public accounts

Had sovereign borrower M wanted to eliminate currency risk due to the issuance of a yen-denominated bond it could have made use of the standard cross-currency swap illustrated in Figure 4.1. By doing so, it would have also locked-in a substantial capital gain due to the yen depreciation that had occurred since the issuance of the yen-denominated bond.

However, such a transaction would have had an impact on M’s interest expenditure only after 1998. We showed in the previous sub-section that such a standard cross-currency swap would have allowed the sovereign borrower to decrease the value of public debt in 1998 and, therefore, to accrue savings in interest expenditure only after 1998.

However, countries like M aiming at entering into the euro area during the period considered were not concerned with the reduction of debt. Rather, they were pressed to limit interest expenditure, especially for 1997, so as to contain the value of the budget deficit. Perhaps political pressure was formidable on debt managers in M, which would have been hard to resist. Whatever the reason, M’s debt office did not enter into a standard cross-currency swap as described in the previous section. Instead, it implemented, through a complicated cross-currency swap, a scheme that transferred the gains described in the previous sub-section to the fiscal years 1997 and 1998. By so doing, M’s debt office lowered interest expenditure in those two years and raised interest expenditure in the years after 1998. It did so by taking advantage of a lack of expertise on the part of officials in charge of monitoring the accounting of such operations.

The cross-currency swap which sovereign borrower M transacted with counterpart “N” (a large market maker in the derivative market) was entered into in 1996 for one year and nine months and matured in 1998. This swap matured on the same day when the yen-denominated bond issued in 1995 expired. In this real swap transaction, counterpart N paid in 1997 and in 1998 a 2.3% yearly fixed interest on a JPY 200 billion notional to M, the sovereign borrower. Also in 1998, when the swap matured, N paid an amount of JPY 200 billion to its counterpart M. Notice that in this way, starting from the day the swap was negotiated, the debt manager in M was perfectly hedged on its original yen-denominated bond liability, just as the debt manager would have been with a standard cross-currency swap transaction (see Figure 4.1).

However the similarities with the previously described standard cross-currency swap contract end here. Indeed, the exchange rate used in the contract (on which the notional amount in unis of M’s paying leg of the swap was set) was not the exchange rate prevailing in the market the day the swap was transacted, 134.1 unis per yen. Rather, the exchange rate used was 193.44 unis per yen, a much higher level than the market level. This implied that at maturity sovereign borrower M paid to counterpart N a much larger amount, 38.668 trillion unis (200 times 193.44 billion), than what it would have paid in a regular cross-currency swap entered into at the market exchange rate.

Finally, the currency swap contract required sovereign borrower M to pay, semiannually starting in 1997, on a uni-notional amount of JPY 200 billion times the 193.44 agreed exchange rate, the uni’s Libor rate minus 1,677 basis points (16.77%). The transaction is synthesized in Figure 4.2 (below).

Sovereign borrowers like M could borrow, at the time when the transaction took place, at levels around Libor with no spread added. It is, therefore, very puzzling that in this case it borrowed at Libor minus 1,677 basis points, which implies a negative interest rate. Sovereign borrower M was therefore going to receive interest payments on both legs of the swap until maturity. Why did it enter into such a strange transaction?

By entering into a cross-currency swap at a higher yen exchange rate (193.44 unis per yen) than the one it could have fixed on the same day (the market exchange rate of 134.1 unis per yen) sovereign borrower M did in fact romise to pay to counterpart N at maturity a much larger amount of unis than it would have done had the swap been transacted at the market exchange rate. Actually, sovereign borrower M paid at maturity approximately 200 multiplied by (193.44-134.1) unis more that it would have paid under a standard cross currency swap.

Sovereign borrower M, in exchange for these extra cash outflows, received from N a series of extra cash inflows during the life of the swap. These cash inflows would not have been part of a standard cross-currency swap transaction. Indeed, counterpart N, instead of receiving uni-Libor rate plus 155 basis points from sovereign borrower M on the floating leg of the swap (as it would have in a standard transaction, see Figure 4.1), received a uni-Libor rate minus 1,688 basis points. This implies that counterpart N paid to sovereign borrower M, in four regular installments every six months starting from 1997 and until the maturity of the swap in 1998, approximately 1,843 basis points per annum more than what it would have had in a standard cross-currency swap transaction.

De facto, the sovereign borrower received four loans from counterpart N, every six months from 1997 to 1998. These loans were paid back at maturity in 1998 by disbursing a greater amount than would have been disbursed had the currency swap been constructed in a standard way.

It is a clever transaction that is initially difficult to comprehend and which hides a simple principle: advancing future cash flows to the present. The transaction in Figure 4.2 had nothing to do with hedging the currency risk in the cash flows related to the underlying yen-denominated liability. Nor did it have anything to do with locking-in with certainty the capital gain that derived from the yen depreciation. These goals could have easily been achieved with a standard cross-currency swap, such as the one shown in Figure 4.1. Rather, the type of transaction that sovereign borrower M entered into allowed the debt management office to receive in advance cash flows that were supposed to be received only in the distant future. The accounting for these cash flows was then implemented as if these represented reductions in interest payments. This accounting choice hid the true nature of the cash inflows, the one of a liability that should impact on the public debt rather than on the budget deficit.

As for the regulatory chaos endorsing or preventing such schemes, here is what Piga had to say about that:

In country A, the author was told: “Maastricht has no exact rule on this, and we would like a rule on it. In A, politicians do not know about these rules, but for us it is scary; if they knew about it they would press for these deals.” In country B, the author was told: “I would love the guidelines to prohibit up-front payments so as to remove any temptation.” In country C, the author was told: “We have a self-imposed, ethical unwritten rule not to use up-front payments. However, we would not like to bring it to the attention of politicians by asking to insert it into the guidelines: That would give them an incentive to put political pressures on us.” When the author asked a debt manager in country C whether politicians would notice such a change in the rules, she said: “Oh yes, they are very careful about these things.” Asked why the politicians would not exert pressure now, if they are so careful, the debt manager did not give an answer. It should be pointed out that not all of these debt managers were in state treasuries. ‘Independent’ agencies are also under pressure from politicians, albeit to a lesser extent. It is worth noting that these political pressures might be particularly intense also on the issue of when to terminate a contract, as positive value transactions would help the budget in a given year in almost all countries.

As to Goldman's culpability, aside from fears of retaliation against all those who report the truth, it seems the "Counterpart N" liability is limited. Goldman did not do anything that was not endorsed and allowed explicitly by host domiciles that benefited explicitly from masking their interest rates as they were entering the EMU. Yet the issue does not end there: when one grasps the extent and severity of such swap transactions, one realizes the massive opportunity for conflict of interest, of mutual blackmail, of the desire for secrecy, and of counterparty risk, which is why Goldman is and has always been the preferred party of interest - just how many other such deals is Goldman on the hook for? Were Hank Paulson to have allowed Goldman to implode, it is likely that most if not all European governments, which one guesses currently have numerous other comparable secret arrangements with "Counterpart N", would have all suffered massive and irreparable losses on existing swap arrangements. This is merely yet another way in which the Federal Reserve-Goldman Sachs complex bailed out the world, however this time using the threat of the unravelling of completely confidential swap arrangements, which were known to at most several high level bureaucrats, and of course Lloyd Blankfein (and Hank Paulson, and Jon Corzine prior).

The author did not expect to be told the whole truth, but hoped to acquire some understanding of the decision-making process in these cases. Two things were learned. First, market makers consult with their legal office, since ignorance of the reason for the sovereign’s request is not legally excusable. Second, while explaining the transaction to the sovereign, the market maker makes sure that all possible risks are presented to the government before signing the deal, so that the government cannot blame the market maker. Interestingly, a market maker told the author that the strategy outlined here is something the industry learned after Merrill Lynch and the Belgian government were engulfed in a conflict that turned out unfavorably for Merrill Lynch. Governments are large and powerful actors, and every precaution has to be taken by market makers to avoid a legal challenge: “My advice to a firm,” one market maker told the author, “is never present a positioning strategy as a hedged strategy. Define which asset you want to hedge against and, if it is a positioning strategy, always show the downside.” The same market maker said: “As for the ethics within our firm, we do look at it very seriously. We do try to see the client’s intention as well. If we do see a window-dressing intention, we discuss it at the highest level, with the chairman. I remember one case when we said no.” Why does this window-dressing per se constitute a reason to halt derivative operations? Governments and market makers (especially the large ones that dominate the derivative market) have a special kind of relationship that is ongoing and often wideranging, including privatizations, syndicated loans, securitizations, asset and liability management, risk management advice and software provision. If a market maker has provided a government with window-dressing advice, window-dressing operations or other inappropriate transactions, it links itself in a tight embrace with the sovereign. Both know something about the counterpart that might hurt them if this activity were to be made public. While it is obvious that it is in their mutual interest not to go on record about such activities, there is also the possibility that one of the two parties might be able to exert undue pressure on the other in future transactions. A market maker might obtain a privatization mandate that it would otherwise not have deserved, possibly damaging the taxpayer or the consumer. A government official might obtain additional advantages, either personal or for the office itself. Keep in mind that such a possibility was not deemed as being so farfetched as to prevent its consideration in the IMF and World Bank guidelines: “Staff involved in debt management should be subject to code-of-conduct and conflict-of-interest guidelines regarding the management of their personal financial affairs. This will help to allay concerns that staff’s personal financial interests may undermine sound debt management practices.”

More generally, concern might arise in counterpart risk management with those counterparts that have a ‘special relationship’ with debt managers for the wrong reasons. We have seen that credit-line ceilings often do not automatically lead to the reduction of exposure to the required level even under normal conditions. How easy would it be to reduce the exposure of a counterpart that has knowledge of a possible improper handling of contracts for accounting purposes by the sovereign borrower? Demonstrating their extreme candor, Danish authorities have underlined the risks of one-to-one relationships in their comprehensive 1998 annual report in a passage on credit-risk management that is worth quoting: “Since the [Danish] central government began to use swaps in debt management in 1983 it has not suffered any loss owing to counterparty default. Certain counterparties used by the central government have faced very serious economic problems, however. A few have ceased to exist or could only continue with the support of public funds or after being acquired by a competitor,” [emphasis added]. In other circumstances it might be tempting to establish a connection between public support for a failing counterpart and its special relationship with the government.

Nearly 8 years before the world was about to end following Lehman's bankruptcy, Piga classified precisely the moral hazard associated with Goldman's too big to fail status, courtesy of the Enron-style accounting treatment that made Goldman an inexorable link at the heart of the viability of the Euro and the European Union. Was Goldman kept alive just to make sure the eurozone did not collapse? We sincerely hope Congressmen and Senators ask Mr. Blankfein this question at the next possible opportunity. And if not that, perhaps it should finally be made public just how many such deals Goldman has underwritten over the past 20 years, what the full masking impact to domestic economies has been as a result, and how many of these deals are currently still outstanding?

As to the next logical question: how many such deals exist, Piga provides the following table of swaps outstanding shortly before the time of the paper's publication, or ~2000.

Following up on this same question, Euromoney made the following observation back when in 2001:

Italy's public debt was around 110% of GDP in 1997 - way over the 60% outlined by Maastricht. As it was so far over the limit, Italy was unlikely to worry about the negligible effect of a foreign exchange loss. Even a large appreciation of the yen was unlikely to have a significant impact on Italy's chances of joining the eurozone. However, the cash advance from the negative interest rate on the swap would have made some difference on  the budget deficit, which stood at 3.2% in 1997. All the political emphasis in the run-up to joining the single currency was on Italy meeting the deficit criteria and showing a move towards reducing its debt. In the end, it failed to do this - the country's debt grew to 120% of GDP in 1999, without causing Italy too many problems with the EU. But it did manage to reduce its deficit to meet the 3% target, though only just, with three months to spare, and this could have meant the difference between being able to join the eurozone or, like Greece, being forced to wait.

In 1997, when Italy's prime minister, Romano Prodi, was canvassing for Italy to be a founder member of the EMU charter, he pointed to the fall in budget deficit, where Italy was one of the stronger of the tested countries. This strengthened Prodi's hand enormously against Germany, which had doubts about Italy's ability to meet the criteria. Indeed, Germany itself had some difficulty in meeting the 3% deficit target.  Back in 1998, several countries' public debt was over the 60% mark - Austria's was 65% of GDP, Sweden's was 75%, Italy's was 121.9% and Belgium's was 121.3%. Greece, the only country to be refused entry to the eurozone in 1998, had a public debt ratio of 106.4%. The reason it was refused, while Belgium and Italy were allowed to join, was that it had a deficit of 4.2%, while those of Italy and Belgium were under the deficit target.

The stunning revelation: Goldman would come to the rescue again and again, likely extracting many pounds of flesh to wave its magice wand and allow countries to not only enter the EU, but to subsequently mooch billions of dollars off of its various structural funds. Without Goldman's assistance Italy would not have been let into the eurozone. And Goldman did some critical window dressing not just Italy and Greece, but very likely most of Europe! We, for one, can't wait for disclosure of all the heretofore confidential swap agreements underwritten by Goldman.

If Greece and Italy are any indication, it only took a phone call by any of these governments to former Goldman CEOs Jon Corzine (latter part of 90's) and Hank Paulson (Goldman CEO until 2006), to arrange the same kind of non-standard, off-market swaps as has now been evidenced were used by both Greece and Italy. After all, keep in mind, the whole purposes of these "Goldman" swaps is to merely reduce public debt interest payment to align with EU and EMU artificially low fiscal requirements, at the expense of debt notional, which is not as constrictive an economic barrier according to Maastricht and other supervisory requirements. When the truth finally comes out that all of Europe's finances over the past 10 years have been a sham, covered up and facilitated very legally by Goldman Sachs, the Euro was collapse under the weight of the decade of lies that have made it seem that the eurozone is an economically viable construct.

As for Mr. Piga's report, on second thought we may have been too harsh on EuroStat. In 2001, Euromoney reported that:

ISMA was concerned enough to cancel a press conference with Gustavo Piga, the author of the report, because it said his safety was not certain.

It is thus very likely that most if not all may have missed it. After all, it was caught by just a few publications at the time, the CFR, which went so far as to claim Italy is Europe's Enron, being, of course, one of them. Yet inquiring minds would be very curious to uncover whether the danger to Mr. Piga's life came from representatives of Country M or Countepart N. If in the distant 2001 disclosure of facts about shady involvements of countries such as Italy and their counterparties such as Goldman Sachs, raised the specter of a threat on a person's life, we dread to imagine just how much other recent facts have been "silenced" over the past 2 years.

Link for absolutely must read, and completely public for the past 8 years report from Gustavo Piga and ISMA.


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Sun, 02/28/2010 - 16:09 | 248890 Anonymous
Anonymous's picture

wow - zerohedge might consider itself a walking deadblog (a threat to the entire internet) if this type of overzealous research keeps turning up.

Sun, 02/28/2010 - 16:39 | 248911 Harbourcity
Harbourcity's picture

Hopefully they don't use Microsoft Windows.



Sun, 02/28/2010 - 18:20 | 248966 Anonymous
Anonymous's picture

Maybe Tyler will sustain a fatal accident within the near future.

Sun, 02/28/2010 - 20:01 | 249038 Anonymous
Anonymous's picture

That would have repercussions.

Sun, 02/28/2010 - 16:10 | 248891 Harbourcity
Harbourcity's picture

I take offense at the repeated accusations of Goldman Sachs shady deals - didn't you hear Obama?  These are smart guys, they deserve their bonuses.


Sun, 02/28/2010 - 19:01 | 248988 mikla
mikla's picture


Sun, 02/28/2010 - 18:00 | 248894 john_connor
john_connor's picture

Awesome article.  Thanks.

"This implied that at maturity sovereign borrower M paid to counterpart N a much larger amount, 38.668 trillion unis (200 times 193.44 billion), than what it would have paid in a regular cross-currency swap entered into at the market exchange rate.

Finally, the currency swap contract required sovereign borrower M to pay, semiannually starting in 1997, on a uni-notional amount of JPY 200 billion times the 193.44 agreed exchange rate, the uni’s Libor rate minus 1,677 basis points (16.77%)."

So counterparty N (presumably Goldman) gave Sovereign M additional cash flow during the years leading up to Euro zone treaty and then got a gangster like payout (relative to market exchange rates) on the swap after the treaty was enacted.

ROTFL LMAO.  Just a complicated way of pulling synthetic positive cash flow forward, out of thin air.

And this:

"In other circumstances it might be tempting to establish a connection between public support for a failing counterpart and its special relationship with the government."

Yeah, no sh!t.  And also add another counterparty (AIG) to insure against catastrophic loss suffered by counterparty N.  The tertiary counterparty would also be covered by Sovereign A, the biggest sovereign of all, on the backs of unwitting taxpayers.

What a phuckin' joke!

Tick Tock, Tick Tock.

As an extension to the above, how many of these types of transactions have occured after the EuroZone was created, especially in the last decade, allowing the Euro to appear stronger than it actually is, and thus allowing for a stealth devaluation of the dollar.

Sun, 02/28/2010 - 16:13 | 248896 Anonymous
Anonymous's picture

I wonder who that counterparty N was. I was hoping to find out by the end of the article. The article seems to automatically switch from counterpart N to Goldman, only because of the greece fiasco and not any evidence from the article.

"goldman" swaps. I think thats the new name for that try of swap.

Sun, 02/28/2010 - 22:03 | 249101 tom a taxpayer
tom a taxpayer's picture

At first, I thought the N counterparty would be "Ndrangheta" (Calabrian Mafia). However, I am now leaning towards Goldman Sachs.

What is the difference between "Ndrangheta" (Calabrian Mafia) and Goldman Sachs?

The national government of Italy  denies support of "Ndrangheta" (Calabrian Mafia).

The national government of U.S. openly supports of Goldman Sachs.

Sun, 02/28/2010 - 16:15 | 248899 Anonymous
Anonymous's picture

it is noteworthy that Gustavo still lives and is not too worried about keeping what he "discovered" to himself. IDEA - perhaps Gustavo revealed and is still revealing what he is told to reveal?

Sun, 02/28/2010 - 19:33 | 249018 CombustibleAssets
CombustibleAssets's picture

Gustovo is "protected" by counterparties.

Sun, 02/28/2010 - 16:21 | 248902 Anonymous
Anonymous's picture

ZeroHedge - I will have to ask you to stop posting all these awesome findings. I leaves very little time for a social life.

Joking aside, awesome find guys. Keep up the great work.

Sun, 02/28/2010 - 16:21 | 248903 DoChenRollingBearing
DoChenRollingBearing's picture

When I started reading the article, I too was curious about Counterpart N...

Sun, 02/28/2010 - 16:41 | 248914 Anonymous
Anonymous's picture

I hope when this thing blows up it leads to riots

Sun, 02/28/2010 - 19:03 | 248991 35Pete
35Pete's picture

God I hope not. Bro, we don't want riots. Trust me. 

Mon, 03/01/2010 - 06:37 | 249281 Anonymous
Anonymous's picture

On the other hand, I want riots.

Sun, 02/28/2010 - 19:34 | 249021 CombustibleAssets
CombustibleAssets's picture

It's hard to profit from anarchy.

Sun, 02/28/2010 - 23:15 | 249135 jeff montanye
jeff montanye's picture

it is hard to profit during anarchy.

Mon, 03/01/2010 - 09:25 | 249324 Anonymous
Anonymous's picture

No riots, riots are good for making the state criminals look like the good guys.
People should make their voices heard, take these criminals of their posts, replace them, expose their dirt, have them encarcerated until they reveal all they know.

Sun, 02/28/2010 - 16:46 | 248915 Crab Cake
Crab Cake's picture

Goldman Sachs, the Council on Foreign Relations....grrrr....

I'm near my breaking point.  America's middle class is being liquidated.  They are dumping misery and impoverishment on billions of people, and it's not because there aren't enough resources, it's because TPTB want more.  They want more power more money, MORE, MORE, and MORE.

The Fed, the corrupted Republicans and Democrats, the ratings agencies, the aristocrats who run the huge corporations, the bankers, the CFR, the Bilderberger group, the Trilateral commission....


Somebody please, line these people up and pull the trigger.  What is it going to take for the good people of this country to say no more, and stop believing the lies.  Do we really have to go Joe Stack on them?  Do we really have to fire bomb their homes?  Must we stom the Fed offices and execute everyone in sight? 

Can this not be done peacefully?

I feel physically sick.  I feel so trapped.  I'm damned if I continue to play along as the oligarchs squeeze my generation and my kids generation into dust.  I'm damned if I go to war and leave my family stranded without a father.  WTF?! 

Can we not just stand as one, and say no more?  That's all it would take.  We just stop working, stop investing, stop spending, and stop paying taxes.  If we do this together, they will have no recourse but to bow to our demands.

I have to turn the computer off for awhile...

Sun, 02/28/2010 - 17:21 | 248936 MsCreant
MsCreant's picture

I'm feeling it too Crabcake. For those of us who have given ourselves permission to delve into these issues, it is really painful. You could give a fuck about someone else saying you are not alone, I am in exactly the same place you are, but hey, you aren't and I am.

I have not read this particular piece yet, because I know I'm peeking down another Rabbit hole and I am asking myself "What do I need to get done today before I do this to myself." I can tell from the comments I am going to wait until this evening and a glass of wine.

I wish I had the guts to not pay my taxes. If my brothers and sisters were doing this all over the country, I'd join.

Our problem is we want to follow the rules. They don't. We need to find a way to enforce the rules that exist, and I actually think we would be okay enough.

Okay... I've fucking got it.


This shit storm is driven by money, it will take money to motivate some real COPS to move on these fraudsters.

If I really thought it would work, I'd donate a lot of money (for me any way) to it.


Prosecutions, Bitches.


Sun, 02/28/2010 - 17:46 | 248948 Lndmvr
Lndmvr's picture

Maybe it starts with " An army of one?"

Sun, 02/28/2010 - 19:19 | 249003 assumptionblindness
assumptionblindness's picture

Where are the whistleblowers?  Oh, I know where they are.  They're giving Mr. Hoffa some company.  

It's pretty obvious that there aren't any cops on this beat, only criminals.

Sun, 02/28/2010 - 19:36 | 249022 tip e. canoe
tip e. canoe's picture

Where are the whistleblowers? 

serving 40 months at FCI Schuylkill

(or afraid to join him)

Mon, 03/01/2010 - 01:06 | 249217 Anonymous
Anonymous's picture

Talk about Wall St/Washington corruption. They are sending a clear message to whistle blowers everywhere, AIG, GS, FED, Treasury etc, etc.

Shame on America.

Sun, 02/28/2010 - 20:04 | 249041 geopol
geopol's picture

Discuss this if you will,,

On Tuesday Feb. 23, Iran announced the capture of Abdulmalek Rigi, the boss of the terror organization Jundullah, which works for NATO. The capture of Rigi represents a serious setback for the US-UK strategy of using false flag state-sponsored terrorism against Iran and Pakistan, and ultimately to sabotage China’s geopolitics of oil. The Iranians claim to have captured Rigi all by themselves, but the Pakistani ambassador to Teheran is quoted in The Dawn as claiming an important role for Pakistan. The Iranians say that Rigi was attempting to fly from Dubai to Kyrgystan, and that his plane was forced to land in Iran by Iranian interceptors. This exploit recalls Oliver North’s 1985 intercept of the accused Achille Lauro perpetrators, including Abu Abbas, forcing their Egyptian plane to land at Sigonella, Sicily. But other and perhaps more realistic versions suggest that Iran was tipped off by the Pakistanis, or even that Rigi was captured by Pakistan and delivered to the Iranians.

Jundullah, otherwise known as the Rigi organization, is a clan-based Mafia organization that has long infested the Iran-Pakistan border. The Rigis are traditionally smugglers and drug pushers of royalist persuasion, and now they have branched out into terrorism. Jundullah is mounting a Sunni rebellion against the Shiite Iranian regime in Iranian Baluchistan. They have blown up a Shiite mosque, killing 25, and managed to kill 50 in a bombing in Pishin last October, where their victims included some top commanders of Iran’s Revolutionary Guard, against which Mrs. Clinton has now declared war. There is no doubt that Jundullah is on the US payroll. This fact has been confirmed by Brian Ross of ABC News, the London Daily Telegraph, and by Seymour Hersh in the New Yorker. Hersh noted that Jundullah has received some of the $400 million appropriated by the US Congress in the most recent Bush-era regime change legislation targeting Iran.

Jundullah is a key part of the US-UK strategy of fomenting ethnic and religious civil war in both Iran and Pakistan. Jundullah is a twofer in this context, since it can help destabilize both sides of the Iran-Pakistan border. Baluchistan has special importance because any oil pipeline linking Iran with China must go straight across Baluchistan. Jundullah’s false flag jihad is a means to make sure that strategic pipeline, which would help solve China’s energy problem, is never built.

There is also no doubt that Jundullah functions as an arm of NATO, a kind of irregular warfare asset similar in some ways to the KLA of Kosovo. Rigi is reported by the Iranians to have met with Jop de Hoop Scheffer when he was NATO Secretary General. Rigi has also met with various NATO generals operating in Afghanistan. Who knows — he may have met with McChrystal himself, a covert ops veteran from Iraq.

This capture comes at a moment when Baluchistan is the object of intense US-UK exertions. The current US-NATO offensive in southern Afghanistan targets Marjah and the rest of Helmand province, which directly faces Baluchistan. Many observers were puzzled when the US and NATO publicized the Marjah offensive in advance. Militarist talking heads like General Barry McCaffrey responded that the main goal of the Marjah offensive was not to destroy the Taliban, but to drive them out of the province. It was thus clear from the beginning that the real goal was to drive the Helmand Taliban fighters into Pakistani Baluchistan. Why?

A statement from the Afghan Taliban covered on the RIA Novosti web site suggests that the real goal of the US-NATO offensive in Marjah-Helmand is to attack Chinese economic interests in Pakistani Baluchistan, and especially the port of Gwadar, one of China’s largest overseas projects. If the US can push the Taliban into Pakistani Baluchistan and into the area around Gwadar, they will have a pretext for militarization – perhaps through Blackwater mercenaries, who are already operating massively in Pakistan, or perhaps through direct US military involvement in the zone. US jackboots on the ground in Baluchistan would interfere mightily with Chinese economic development plans. They would also allow the US to commandeer Gwadar as the home port of a new NATO supply line into southern Afghanistan, allowing the avoidance of the Khyber Pass bottleneck. The US could also use Baluchistan as a springboard for bigger and better terror ops into Iran, electronic surveillance of Iranian activities, and so forth.

The US and NATO had evidently planned a double envelopment of Baluchistan, with Taliban fighters from Helmand arriving from the north, while the Jundullah escalated their own activity on the ground. Now that Rigi has joined his brother in Iranian jails, Jundullah has been decapitated, and the NATO strategy has consequently been undermined. Iran has bagged a dangerous terrorist foe. Another winner is Pakistan, where The Dawn celebrated the capture of Rigi as “a godsend” and “a lucky break” for Pakistan. By helping Rigi to fall into Iranian hands, Pakistan may have finally found an effective way to counter the US-UK strategy, which notoriously aims at the breakup and partition of Pakistan. The coming Iranian trial of Rigi may go far towards exposing the real mechanism of terrorism in today’s world, with the CIA sitting in the dock next to Rigi.

Is America what you think it is?????

Sun, 02/28/2010 - 21:56 | 249097 JR
JR's picture

Tonight, geopol, you have posted the kind of report that qualifies as protection of our liberties, that will not be seen in the main stream media, and is the perfect example of why new media is taking the place of the media monopoly and its five corporate owners; this is the type of analysis that is essential to the survival of the American system. 

Sun, 02/28/2010 - 22:59 | 249123 geopol
geopol's picture

Just another data point not worth noting by the MSM....


The Detroit Christmas bomber was deliberately and intentionally allowed to keep his US entry visa as the result of a national security override issued by an as yet unknown US intelligence or law-enforcement agency with the goal of blocking the State Department’s planned revocation of that visa. This is the result of hearings held on January 27 before the House Homeland Security Committee, and in particular of the testimony of Patrick F. Kennedy, Undersecretary of State for Management. The rickety US government official version of the December 25 Detroit underwear bomber incident, which has been jerry-built over the past month and a half, has now totally collapsed, and key elements of the terrorism-spawning rogue network inside US agencies and departments are unusually vulnerable to a determined campaign of exposure.

These developments decisively confirm the analysis offered by the present writer in a Dec. 28, 2009 television interview on Russia Today.1 On that occasion, my estimate was that Mutallab was a protected patsy being used by rogue elements of the US intelligence community for the deliberate and intentional creation of a high profile incident with the goal of obtaining a large-scale political effect. On January 4, Richard Wolffe reported on the MSNBC Countdown program that the Obama White House was investigating whether the Detroit Christmas incident had been “intentionally” created by an intelligence network with an “alternative agenda.”2 It was in this report that Wolffe posed the alternative of “cock-up or conspiracy.”3 Unfortunately, Obama opted for the screw-up version on January 5.

Based on what was already known a few days after this incident, it was clear that normal screening and surveillance procedures had been scrapped and aborted in order to allow the youthful patsy Umar Farouk Abdulmutallab of Nigeria to board his flight from Amsterdam in the Netherlands to Detroit. Mutallab’s father, a rich, well known, and reputable Nigerian banker had gone to the US Embassy in his country and formally warned a State Department official as well as a CIA representative that his son was in Yemen and in all probability consorting with terrorists. Under normal circumstances, this report alone would have been more than enough to get Mutallab’s US visa revoked in the same way he had already been denied entry to Great Britain. He also would normally have been placed on the no-fly list, thus setting up two insuperable obstacles to getting on his Detroit bound flight and winging off to produce an incident which caused several weeks of public hysteria in this country, completely with demands for body scanners in airports. In addition, the US intelligence community had reports that a Nigerian was training with the purported “Al Qaeda in the Arabian Peninsula” in Yemen. Obama had called a December 22 meeting with top CIA, FBI, and DHS officials because of reports of a terrorist attack looming during the Christmas holiday.

The January 27 hearings of the House Homeland Security Committee were also addressed by Michael Leiter, the AWOL Director of the National Counterterrorism Center, along with Jane Holl Lute, the Deputy Secretary of Homeland Security, who was sent in place of HHS Secretary Janet Napolitano, who boycotted the hearings. But the important testimony came from Kennedy, whose responsibilities include Consular Services, and therefore visas. In his opening statement, Kennedy offered a tortured circumlocution to describe what had happened. Attempting to head off the question of why the State Department had not revoked Mutallab’s visa, Kennedy stated: Continue reading State Department Admits: Detroit Christmas Bomber Was Deliberately Allowed to Keep US Entry Visa, Board His Flight

Sun, 02/28/2010 - 23:01 | 249126 Hephasteus
Hephasteus's picture

I hope they make this all crystal clear. So the american people can think twice about cooperating with our home grown psychopaths.

Sun, 02/28/2010 - 23:25 | 249140 jeff montanye
jeff montanye's picture

so true, so true.  wish we would have followed general marshall's advice to truman.

Mon, 03/01/2010 - 00:00 | 249172 Anonymous
Anonymous's picture

Ummmm. I remember back when this was a blog people were stating that "airport security is unnecessary, its all a false flag"...

So, what is it? False flag, conspiracy, or govt failure?

Looks like you chose 'conspiracy'. After the fact.

If only we all had the anger and hindsight you do.

Or not, cause if there were no irrational anger this website would be dead.

Your move.

Mon, 03/01/2010 - 00:26 | 249199 geopol
geopol's picture


My post,,,Historically

Nothing after the fact..Enjoy

The case of Umar Farouk Abdulmutallab is not a matter of unconnected dots, but rather that of a protected patsy or puppet deliberately used by the US intelligence community for a Christmas Day provocation designed to facilitate US meddling in the civil war in Yemen, which is where Umar Farouk allegedly trained and was given his PETN device. Banker's son Umar Farouk had been denied an entrance visa to Great Britain and had been denounced to the US Embassy in Lagos, Nigeria as a possible terrorist by his own father in mid-November. His one-way ticket to Detroit was bought in Ghana for $2800 in cash, and he reportedly entered Nigeria illegally. In Amsterdam, he was assisted at the Northwest Airlines gate by a "well-dressed Indian" who explained that Umar Farouk had no passport. He did have PETN, the same substance supposedly used by the mentally impaired shoe bomber Richard Reid in his abortive attack of eight years ago. In spite of all this, Umar Farouk's US entry visa was never revoked, he never made it onto the no-fly list, and he was never thoroughly searched. These egregious lapses in normal procedure show that Umar Farouk was part of an orchestration sponsored by the CIA, which has now yielded 4 solid days of media hysteria. Obama has formulated his new version of the Axis of Evil, composed of Afghanistan-Pakistan, Somalia, and Yemen. In Yemen, a civil war pits the Saudi-backed central government against the Iranian-backed Shiite Houthi rebels, whom the US has bombed at least twice this month. The goal here is to play Iran against Saudi Arabia so as to weaken both the pro-Moscow Achmadinejad government in Iran, and also those Saudi forces that are fed up with their status as a US protectorate. The US is openly now sponsoring a regroupment of "al Qaeda" (the CIA Moslem legion) in Yemen, including by sending fighters direct from Guantanamo. The new CIA-promoted entity synthetic entity is "Al Qaeda on the Arabian Peninsula" or AQAP, a gaggle of US patsies, dupes, and fanatics which is claiming credit for the Umar Farouk incident. The US hopes to further dominate the exit from the Red Sea and the Suez Canal, while also easing pressure on the battered US dollar by jacking up the price of oil in an atmosphere of tension on the Arabian peninsula.

Mon, 03/01/2010 - 00:06 | 249178 Anonymous
Anonymous's picture

Yes! awesome, can I call you a 'neo-truther'?

Mon, 03/01/2010 - 00:29 | 249204 geopol
geopol's picture

The fact the you understand it, is enough for me....




Mon, 03/01/2010 - 01:18 | 249219 Anonymous
Anonymous's picture

Wow, double great stories and insights, and they help illustrate what a small play the thermate used to implode the steel framed buildings was for men of such cunning.

Mon, 03/01/2010 - 01:20 | 249220 macfly
macfly's picture

Wow, terrifying, and so sad. We really are the evil empire. Helps me better understand the callous use of thermate to implode three steel framed sky scrapers.

Mon, 03/01/2010 - 02:59 | 249250 delacroix
delacroix's picture

the one way ticket factoid, has been refuted.

Sun, 02/28/2010 - 22:09 | 249103 I am a Man I am...
I am a Man I am Forty's picture

Did you sleep at a holiday inn express last night?


Sun, 02/28/2010 - 23:22 | 249136 Anonymous
Anonymous's picture

Yes, pretty much....except the guff about "cutting off China's oil". Recall that the Iraq war was, according to the the Left, "about oil" too. Not. About the security of Israel, as events have proved. Ditto the de-stabilization and eventual ZOG war on Iran.

Sun, 02/28/2010 - 23:37 | 249151 geopol
geopol's picture

For her Jan. 29 speech at the Ecole Militaire in Paris, Mrs. Clinton was evidently wearing that stylish new French perfume from the House of Sarkozy called Chantage – meaning blackmail. Mrs. Clinton gloats because she thinks she has the Chinese leadership in a bind. As she stated, she knows that China increasingly depends on oil from the Gulf. She demanded that China vote for crippling sanctions against Iran in the UN Security Council this month, while Sarkozy — the craziest of all western leaders against Iran — controls the presidency of that body. For China, approving crippling sanctions against Iran means in all probability the loss of 10% to 12% of its oil imports, the aborting of some $80 billion in development projects by Beijing in Iran, the sacrifice of hundreds of billions of dollars worth of oil which the Chinese have locked in via futures contracts, and, above all, a farewell to the best chance of getting a secure overland oil pipeline far away from the US-UK fleets — the pipeline from Iran via Pakistan into China.
If the Chinese fail to captitulate on this point, Mrs. Clinton darkly hinted, the US would no longer restrain the Israelis, who might then launch their long-threatened air attack on Iran, which the US has emphatically vetoed over the past two years. At that point, the Iranians would try to interdict Gulf maritime traffic and close the strait of Hormuz, meaning that about a third of China’s oil could be cut off. (The other 20% comes from Saudi Arabia.)
The US-UK elite is in a state of collective hysteria about the growth of Chinese economic power. China is now the largest exporter in the world, and officially about to become the second largest economy, passing Japan to challenge the US.
The US is way behind China in fast rail, and will soon fall behind in modern nuclear energy production. China is clearly aiming to put astronauts on the moon, but the Obama-Orszag NASA budget makes clear that the US is going nowhere when it comes to manned space flight. If US elites really want to keep pace, they should put aside their feckless attempts to contain China by subversion, economic warfare, and fomenting conflicts in the Guif and on the India-China border. Match the Chinese programs in nuclear reactors, fast rail, and manned space flight, or prepare for the status of has-been.
But for right now, the Iran attack scenario, which had been pushed to the back burner by the US National Intelligence Estimate of December 2007 — which stated that there was no Iranian nuclear weapons program — is once again operational, this time as a means at striking at China’s oil supply.

Mon, 03/01/2010 - 01:29 | 249223 macfly
macfly's picture

Oh hell, they're going to play the war card aren't they?


It is the only way they'll unite a widely discontented populace, finding a common enemy. There has been a lot of provoking China lately, something I fail to grasp having always believed you don't bite the hand that feeds you. China could do to us what our bankers did to Germany in 1922-3, and the results could play out the same way, with us ending up with a ferociously nationalistic uniter, who will lead us into the jaws of MAD. 


Interesting times indeed.

Mon, 03/01/2010 - 13:10 | 249553 Anonymous
Anonymous's picture

Interesting words. But just a reflexion, dont bite the hand that feeds you? Seems to me that's China's problem here. If China got bitten, they can kiss goodbye to their hand.
Maybe more cautious for China to have this in mind. And to have looked at the jaws of the animal they feed. I suppose they have this in mind as in the western world in general and in the US, I have been impressed by the high level of mob mind existing against China. The populace only asks for a pseudo reason to turn against China.

Sun, 02/28/2010 - 20:38 | 249059 GoldSilverDoc
GoldSilverDoc's picture

Read about Gandhi.  Read about the salt.

Sun, 02/28/2010 - 23:56 | 249166 caconhma
caconhma's picture

This is why I have a great admiration for the Great French Revolution. In just a few years, dying France became a great country.

Regardless who Obama is (marxist, socialist, welfare-lover, etc.), he is a totally incompetent POS leading the USA and its people to a slaughter house. Unfortunately for us, the US Congress is terribly corrupt. 

Mon, 03/01/2010 - 09:39 | 249334 Marley
Marley's picture

Love over gold.

Sun, 02/28/2010 - 16:53 | 248920 Oracle of Kypseli
Oracle of Kypseli's picture

Counterparty "N" Humm!

I am going to repost my "what if" question.

What If: The Financial Glitterati of the US, utilizing the "Calamari Cartel" and "The house of Morgan" are conspiring to control the rest of the world in order to hide their own mess and in the process enslave everyone else?

What if: Greece was selected by the speculators to be the first for default because of its size, instead of Italy?

Is the spaghetti cartel conspiring with the calamari cartel?

Can someone tackle this?

Getting hungry talking like that.

Sun, 02/28/2010 - 16:56 | 248922 Anonymous
Anonymous's picture

OK, someone must be able to explain this post in 10 - 20 sentences for the ones who try - but have problems - to understand exactly what is going on. Thanks in advance.

Sun, 02/28/2010 - 17:07 | 248929 truont
truont's picture



TD:  "First, governments have clear incentives to cook the books. The EU continues to impose fiscal expenditure restrictions on eurozone governments, violation of which can result in censure and fines. The International Monetary Fund imposes fiscal conditionality on its client governments, which naturally have a strong incentive to keep the Fund from closing the money spigot. Derivatives can be used to shuffle cash flows through time in ways that current accounting rules do not prevent.

Second, banks are only too willing to market derivatives tricks to their big client governments, particularly when it puts them at the front of the queue for future bond issues and privatisations.

Third, if the integrity of government financial data is fatally undermined, the damage to stock and bond markets will dwarf the "Enron effect" that has recently pummelled the Dow."

Sun, 02/28/2010 - 17:27 | 248938 MsCreant
MsCreant's picture

I have not read the article, when I think it is going to be "involved" I will sometimes scan the comments for context clues to help me.

I could hug you right now. Thanks.

Shorter version: Everyone is cooperating to kite everyone's checks. If they never "land" no one gets in trouble. Margin calls make balls come out of the air and money stand still for counting. This is what the collapse will really be.

Sun, 02/28/2010 - 22:44 | 249115 Anonymous
Anonymous's picture

As such, and I would prefer CD to comment on this, what is the worth of this website? The community that bashes people or a community that learns based upon a website that challenges itself?

I have to say mscreant, you are guilty of having the same tendencies that many perceive 'will take this country down'.

Just like fox news, is this a community or an evolving news source? It will be y'alls call.

Sometimes effort is required to form your own opinion.

Sun, 02/28/2010 - 23:33 | 249145 MsCreant
MsCreant's picture

I will form my own opinion. I am back to read the article now. That was my plan, see my earlier post on this thread about going down rabbit holes. I am not a trader. Some of the stuff that is common sense to you, is not to me. Does not mean I am stupid, but I am not acculturated. I do not think that cruising the article, getting the headlines and subheadings, starting to form questions about what I want to learn from the article, and reading others reactions is a bad strategy. I hear you anon., we should be careful not to have our news predigested for us, but to be honest, I am not sure a news source cannot be a community too. My world is not that black and white.

I feel confident I put in a great deal of effort, maybe more than you, this is not my major area of study. :-)

Mon, 03/01/2010 - 00:07 | 249180 moneymutt
moneymutt's picture

you were corrected, "lady"....your response was more civil than expected or neccesary...I would call jumping on someone for scanning an article pretty freaking petty...

and besides, how the hell are we supposed to keep up with all the content on this site, how they can write more than we can read floors me...

Mon, 03/01/2010 - 00:23 | 249196 Anonymous
Anonymous's picture

Accepted. However if you initially see things as 'going down rabbit holes' you are possibly a sunk cost.

Yes I saw your prior post. It was not relative to the thread at all, you really only threw 'spaghetti on a wall'

Fine. This may never get posted as ZH has acquired a necessary fascism for banning posts and ip's.

Basically there are dozens of reasons we all want to academically dispute this. And yes, 'we' are watching and HOPING the conversation ceases being douchey.

Mon, 03/01/2010 - 00:49 | 249211 MsCreant
MsCreant's picture

Since I am a sunk cost, ignore me. None of us "spaghetti on the wall posters" are in your way. Take responsibility then for the knowledge you posess. Dispute it and de-douche it.

The wall is yours.

I'd love to see you debunk some or all of this. Fire at will. Guess I will have to look for more Anon posters and guess if they are you or not.

Sun, 02/28/2010 - 23:29 | 249143 jeff montanye
jeff montanye's picture

"margin calls make balls come out of the air and money stand still for counting."  that's music.  well said.

Mon, 03/01/2010 - 03:57 | 249261 JR
JR's picture

This is my quick take (?)…with apologies to Tyler…

Goldman Sachs helped Italy cook its books so as to fall within the budget deficit-to-GDP ratio limit of 3% necessary for entry into the Eurozone. Goldman gave Italy cash advances via a negative interest rate of –16.77% on a complicated cross-currency swap scheme to increase Italy's interest revenue in 1997 “with euro entry as the goal.”  Piga unearthed the documentary evidence—an actual swap contract—indicating that Italy used swaps to mislead other EU governments and institutions as to the size of its budget deficit (actually 3.2% in 1997) so as to falsify compliance with the Maastricht Treaty. At the time, Germany had doubts about Italy’s ability to meet the criteria.

As a result, Italy was able to fake its deficit to meet the 3% target and join the Eurozone.

In reality, the transaction only helped Italy to postpone interest expenditure, unduly raising the level of interest expenditure in the years after 1998.

The question now is how much financial window dressing did Goldman provide other governments these past many years, what potential damage might it create down the road for taxpayers and/or consumers, to stock and bond markets and to the actual viability of the Euro and the European Union?  Was a failing and finagling and grasping Goldman in 2008 “kept alive just to make sure the eurozone did not collapse”?

Says Tyler: [P]erhaps it should finally be made public just how many such deals Goldman has underwritten over the past 20 years, what the full masking impact to domestic economies has been as a result, and how many of these deals are currently still outstanding.”

IMO, such are the many moral hazards of giving private investment bankers sole control and access to a nation's money supply. 

Sun, 02/28/2010 - 17:05 | 248927 Comrade de Chaos
Comrade de Chaos's picture


I imagined that the political correctness and smug within EU smells fishy but WOW.


EU: GS did it it wasn't us.

GS: economy did it, so bail us out or else.

World Economy: oh boy, I am so f.ed.

Sun, 02/28/2010 - 17:42 | 248944 TheGoodDoctor
TheGoodDoctor's picture

So is this the Black Swan?

Why do I get the feeling that the back stabbing will begin soon?

Maybe by the Ides of March? One can only hope.

I just hope there are no wars over this. If counterparty N is indeed Goldman Sachs, maybe we can just hand over Henry Paulson then instead of going to war. Unfortunately, I don't think it will be that easy.

Hopefully these finanicial wizards will be prosecuted to the full extent of the law much like the Nazis of WWII were on a global scale.

I'm not sure how many more rabbit holes I want to look down MsCreant! :)

Sun, 02/28/2010 - 21:17 | 249082 mouser98
mouser98's picture

do the real criminals ever get prosecuted?

Mon, 03/01/2010 - 09:31 | 249327 Anonymous
Anonymous's picture

Oh, yeah, they will be prosecuted, if not in this life, certainly soon.

Heb. 9:27 "It is appointed for man to die once, and after this comes judgment"

It will be awful.

Mon, 03/01/2010 - 09:32 | 249328 Anonymous
Anonymous's picture

Oh, yeah, they will be prosecuted, if not in this life, certainly soon.

Heb. 9:27 "It is appointed for man to die once, and after this comes judgment"

It will be awful.

Sun, 02/28/2010 - 23:44 | 249159 Anonymous
Anonymous's picture

As someone who grew up reading Hunter, I find it unfortunate his image is abused by those with an attitude and aptitude that does him disservice.

I assume you admire him and, if you do, I figure he would find your imagination sadly lacking, vocabulary pathetic, and attitude worthy of a rum-soaked towel left on the floor of my cuban beachouse.

Mon, 03/01/2010 - 01:53 | 249237 MsCreant
MsCreant's picture

You are acting a whole lot like a troll picking fights. Would Hunter post what you did? Nah. I do think he'd like ZH (though he might throw down material that would cause Matt Taibbi permanent "shrinkage," to borrow a term).

Go ahead and do whatever it is that helps you feel good about yourself. Guess we'll all watch, it's a free blog and all...

Mon, 03/01/2010 - 00:15 | 249187 moneymutt
moneymutt's picture

the more I read, I think events like the price of housing going down in US (after unprecedented increases) are white swans, enron was a white swan, sub prime at white swan, war in middle east, white swan, earthquakes, white swan, cat 4 hurricane hitting gulf coast, white swan, 911, white these events that are only unpredictable in their timing and specifics, not in their general very probable eventuality, how they can be considered black swans is beyond me...apparently these swans have been in the pond between US and Europe for a long time, and there of lots of them...just a question of when they washed up on shore...

Sun, 02/28/2010 - 17:42 | 248945 merehuman
merehuman's picture

Thank you. This is inspiring me

to plant more seeds in the garden.


Sun, 02/28/2010 - 17:48 | 248949 Anonymous
Anonymous's picture

DO you have any proof that the Counterparty bank was Goldman Sachs? I think they are douchebags as much as the next guy, but this is a bit much. It could be *any* market-maker, and not necessarily an American one either.

Try not to let emotion get in the way of reporting facts.

Sun, 02/28/2010 - 18:56 | 248986 35Pete
35Pete's picture

Counterparty N wasn't Bailey Building & Loan, that's for sure. 

Sun, 02/28/2010 - 21:00 | 249073 Anonymous
Anonymous's picture

Wasn't Money Tree Payday Loans either, that's for sure.

Sun, 02/28/2010 - 23:32 | 249144 jeff montanye
jeff montanye's picture

that you don't know and it could be so many is, in itself, the most damning part.

Sun, 02/28/2010 - 18:14 | 248959 deadhead
deadhead's picture

So, if Greece gets some bond help, we need to get a poll going on where the vultures go next......Portugal? Spain? Italy? Ireland?  You just KNOW that once moral hazard is introduced to Greece, the market has to test if they will go all the way.....



Sun, 02/28/2010 - 18:16 | 248960 Anonymous
Anonymous's picture

Free Jeff Skilling

Sun, 02/28/2010 - 19:20 | 249005 35Pete
35Pete's picture

On October 13, 2009, the US Supreme Court agreed to hear two questions presented by Skilling's appeal.[3] The Court subsequently scheduled argument for March 1, 2010.[24]

The first issue is whether the federal "honest services" fraud statute (title 18 of the United States Code, section 1346) required the government to prove that Skilling's conduct was intended to achieve "private gain" rather than to advance the interest of his employer, and, if not, is the statute unconstitutionally vague?[25] The Court will be hearing two other cases about the same statute on December 8, several months before it hears Skilling's appeal: Black v. United States and Weyhrauch v. United States.[25]

The second issue -'in-house judging'- is whether, when a presumption of jury prejudice arises because of widespread community impact of defendant's alleged conduct and massive, inflammatory pretrial publicity, the government may rebut that presumption, and, if so, must the government prove beyond reasonable doubt that no juror was actually prejudiced?[25]

The Kings of the Bench apparently plan on freeing him in the morning. 

Sun, 02/28/2010 - 23:35 | 249147 jeff montanye
jeff montanye's picture

or, alternatively, jail the rest of the guilty.  

Sun, 02/28/2010 - 18:24 | 248969 Fritz
Fritz's picture

All this information is resurfacing at a curious time. Clearly, the Greek swaps and this Italian mess was discussed/disclosed in the past.

Somebody is motivated to shine a light on this again. I just can't figure out who. It may be as simple as fingering Goldman as a scapegoat, since they have deep pockets.

Is the goal to get Goldman banned from EU deal flow?


Sun, 02/28/2010 - 19:27 | 249013 A Man without Q...
A Man without Qualities's picture

More likely something nasty is brewing re California, so time to throw the dog a bone...

Sun, 02/28/2010 - 19:55 | 249036 CombustibleAssets
CombustibleAssets's picture

Or it may be an attempt to deflect attention from Goldman if they are not Counterparty N.


Sun, 02/28/2010 - 23:04 | 249129 Anonymous
Anonymous's picture

Yes, it could be the large hedge funds who have already taken short positions on the euro and pound.

But honestly, who cares? If this is true, the systemic implications are huge. It undermines the credibility of well... everything.

Sun, 02/28/2010 - 23:07 | 249130 tip e. canoe
tip e. canoe's picture

excuse me Mista Fritz, Mista Dimon on line 1, Mista Rockafella on line 2...

Sun, 02/28/2010 - 23:58 | 249168 moneymutt
moneymutt's picture

we regular folks usually only find things out when elites are fighting amung themselves

Mon, 03/01/2010 - 00:02 | 249176 three chord sloth
three chord sloth's picture

Pure EU domestic politics. Half of the heat is better than all. The leaders of Greece (and the other PIIGS) want to deflect blame, and the best substitute target is always the 'Anglo Saxons'. The public over there will buy it.

Sun, 02/28/2010 - 18:37 | 248975 Anonymous
Anonymous's picture


Sun, 02/28/2010 - 18:45 | 248980 MsCreant
MsCreant's picture


Sun, 02/28/2010 - 23:03 | 249127 Hephasteus
Hephasteus's picture


Mon, 03/01/2010 - 00:18 | 249190 agrotera
agrotera's picture

ROFLOL!!!...thanks Hephasteus...

Sun, 02/28/2010 - 18:53 | 248982 35Pete
35Pete's picture

My God!. I can't wait until FOX, CNN, and CNBC pick up this story. It'll be bigger than the Pentagon Papers!!!

Voice inside my head: "Yeah OK Pete.. Have another scotch". 

Sun, 02/28/2010 - 20:01 | 249039 CombustibleAssets
CombustibleAssets's picture

 The current administration can't afford to waste the limited attention span of the American consumer on obscure financial frauds in foreign countries.

Mon, 03/01/2010 - 00:01 | 249173 moneymutt
moneymutt's picture

yeah, obscure stuff like counterparties that taxpayers have to make whole to the tune of trillions and the risk of global financial biggee

Sun, 02/28/2010 - 23:00 | 249125 Hephasteus
Hephasteus's picture


Sun, 02/28/2010 - 23:37 | 249152 jeff montanye
jeff montanye's picture

yes.  that was another time and another place.

Sun, 02/28/2010 - 19:15 | 248996 Anonymous
Anonymous's picture

Can someone do a write up that explains this in english for the financially handicapped like myself?

I kind of follow it, but its just a little too technical for me.

Send it to me in an email and I'll post it on my blog.


Mon, 03/01/2010 - 03:32 | 249257 merehuman
merehuman's picture

All those trillions we blew...Forget about it. Ancient history, lets not dig up the past we have a present to deal with, erH no those arent my footprints, i was never here.

Mon, 03/01/2010 - 13:26 | 249572 Anonymous
Anonymous's picture

Thanks Thomas for your explanation.

I got your email.

Sun, 02/28/2010 - 19:42 | 249027 CombustibleAssets
CombustibleAssets's picture

"The European Union never intended to enforce the debt limitation, only the annual deficit limitation. Italy's deficit was forecast to be within striking distance of the 3 per cent barrier and the swaps legally affected only the deficit. The debt argument is a red herring."


"...we are fully confident that many more examples will emerge shortly. "

There is always more than one roach

Sun, 02/28/2010 - 20:20 | 249052 wake the roach
wake the roach's picture


Sun, 02/28/2010 - 20:10 | 249047 Anonymous
Anonymous's picture

can bondholders sue Italy?

Sun, 02/28/2010 - 20:29 | 249054 Reflexivity
Reflexivity's picture

"When the people fear their government [or their bank], there is tyranny; when the government [or the bank] fears the people, there is liberty."

--Thomas Jefferson, [additions mine]


Sun, 02/28/2010 - 20:40 | 249062 Anonymous
Anonymous's picture

This is my first post here guys so please bear with me.

I'd like to know what you all make of this:

I have been following this site's Thursday 4:30pm weekly postings religiously for over a year.

Take a look at Table 3 - M1 Currency - we are close to a record (seasonally adjusted) at 866.4 Billion and also close to a record (non-seasonally adjusted from Table 5) at 869.8 billion.

Couple of questions:
1. How much really does it say here that the currency in circulation is increasing? The FED "prints" money in other ways with purchasing their own bonds, etc. but is this still a key indicator?
2. If this page or statistic means a lot, might Goldman Sachs get their "insider" hands on these reports before the 4:30pm after market posting?

Sun, 02/28/2010 - 20:49 | 249069 Anonymous
Anonymous's picture

Wouldn't if be "Counterparty G" if it were Goldman?

Sun, 02/28/2010 - 21:05 | 249078 Neophiliac
Neophiliac's picture

Great find.  Just another confirmation that financial crises happen when someone invents a new way to make a bad loan. Thanks, Goldman!

Sun, 02/28/2010 - 21:27 | 249084 Anonymous
Anonymous's picture

This is actually an old story. To the best of my memory, the counterpart N was not Goldman Sachs, but JP Morgan. I will try to recover the source if I have time tonight.

Sun, 02/28/2010 - 23:14 | 249133 Anonymous
Anonymous's picture

The issue is not who is Counterparty N. That is largely irrelevant. The issue is that a very large part of sovereign indebtedness could be understated and would pop at an unknown time (whenever those swaps come due)

Sun, 02/28/2010 - 23:41 | 249155 jeff montanye
jeff montanye's picture


Mon, 03/01/2010 - 00:58 | 249213 Anonymous
Anonymous's picture

Well, that's not a new story at all. Spain and Portugal also did that to join eurozone. Italy's local governments have always been doing that. I just thought everyone knew Italy's counterpart at that time was JP Morgan instead of Goldman Sachs. As other story, when Greece joined eurozone, Greece said its black economy's size is 30% of GDP. That's the way Greece cleared the eurozone's 3% budget deficit criterion. In view of that simple trick, cross currency swap is a small issue.

Sun, 02/28/2010 - 21:28 | 249085 Anonymous
Anonymous's picture

Oh Crab Cake, you echo my sentiments exactly.
"Goldman Sachs, the Council on Foreign Relations..."

This is so unlike ZH ! Please bring responsible journalism.

Mon, 03/01/2010 - 00:28 | 249202 TheGoodDoctor
TheGoodDoctor's picture

Ahhhhh! Crab Cakes! (Like Homer Simpson).

Mon, 03/01/2010 - 15:46 | 249821 MsCreant
MsCreant's picture


Sun, 02/28/2010 - 21:33 | 249087 Anonymous
Anonymous's picture

Renowned currency trader Joseph Lewis is buying N

Sun, 02/28/2010 - 21:37 | 249089 Anonymous
Anonymous's picture

For now, I could not find better source than this one, which suggests the counterpart N was JP Morgan.

Mon, 03/01/2010 - 07:50 | 249301 Anonymous
Anonymous's picture

That's originally an article from the London /Independent/: . /City A.M./ also says

> Even the latest twists – Goldman Sachs helped Greece push some debt off balance sheet and JP Morgan did the same with Italy – are old stories. The Italian transaction dates back to 1995; it was first revealed in 2001 by Gustavo Piga, professor at the University of Rome.

which almost unquestionably fingers Morgan as "Counterpart N" even though the term doesn't appear.

Sun, 02/28/2010 - 22:00 | 249100 glenlloyd
glenlloyd's picture

absolutely brilliant for digging this up...and to think this has been out there for 8 years, incredible. It scares me to think about how widespread this might be.

Sun, 02/28/2010 - 22:47 | 249117 Anonymous
Anonymous's picture

Remember, AIG was just the Western Union, shipping the Fed's hush money to "affected" counterparties.

Sun, 02/28/2010 - 22:49 | 249118 bugs_
bugs_'s picture

Mama-Mia how'a many more'a spicey meatballs we gonna hav'ta eat?

Sun, 02/28/2010 - 23:09 | 249131 Anonymous
Anonymous's picture

Fascinating..however much to arcane and complicated for Joe Kernan and the I -pad hawkers...thanks Tyler for the incredible education and information.

Sun, 02/28/2010 - 23:36 | 249149 Bruce Krasting
Bruce Krasting's picture

This sounds unusual, but it is not. You own a stock and have 100k profit in the position and go to cash it in. You broker says, "I can pay the 100k in cash or I could set it up to look like you interest expense line went down.

This is small beer. You should see what the companies do to avoid (not evade) taxes. It's called leasing.......

Sun, 02/28/2010 - 23:47 | 249161 jeff montanye
jeff montanye's picture

and what individuals do to avoid capital gains tax, it's called date of death tax basis revaluation.  bruce, how about a short primer on all of it just to fry some eyebrows?

Mon, 03/01/2010 - 00:29 | 249203 Nihilarian
Nihilarian's picture

I'm sure the frequency of equity swaps is directly correlated with the size of the capital gains tax.

Mon, 03/01/2010 - 00:10 | 249183 Anonymous
Anonymous's picture

Would it be ok for me to tell you that JP Morgan Chase and Goldman Sachs are essentially the same company?
The same group of individuals collecting a gigantic bounty together?

Would it?

Lend me your 5 iron, James.

Mon, 03/01/2010 - 10:14 | 249354 Anonymous
Anonymous's picture

Why not say that the banks that absorbed the non-investment banks in 2008 are all the same ? they are just about 4 or five, and they have the largest monetary weapons of mass destruction in the planet, able to default entire nations/continents ? This is modern warfare !

Mon, 03/01/2010 - 00:20 | 249193 buzzsaw99
buzzsaw99's picture

Good for Counterparty N. The whole EU is a fraud anyway, might as well gouge 'em while they cobble it together. Anyone who does business with Counterparty N. deserves the screwing imo. You can't cheat honest PIIGS.

Mon, 03/01/2010 - 00:24 | 249198 spekulatn
spekulatn's picture


Wow T.D.

Great stuff.

Mon, 03/01/2010 - 00:50 | 249210 Privatus
Privatus's picture

How this for a coincidence? During his time at the Italian Treasury - 1991 to 2001 - (Super)Mario Draghi chaired the committee that revised Italian corporate and financial legislation and drafted the law that governs Italian financial markets. He was then vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee (2002–2005).

Mon, 03/01/2010 - 01:31 | 249224 Anonymous
Anonymous's picture


At first, I thought the N counterparty would be "Ndrangheta" (Calabrian Mafia). However, I am now leaning towards Goldman Sachs.
What is the difference between "Ndrangheta" (Calabrian Mafia) and Goldman Sachs?
The national government of Italy denies support of "Ndrangheta" (Calabrian Mafia).
The national government of U.S. openly supports of Goldman Sachs.

Mon, 03/01/2010 - 01:36 | 249228 JR
JR's picture

Thanks, Tyler, for these momentous revelations!

To give private bankers the authority to issue and control a nation’s currency is dangerous enough, but to allow them to practice this endeavor in secret, as well, has doomed free peoples here and abroad from the time of the Federal Reserve’s inception.

The owners of the New York Federal Reserve Bank apparently desired formation of the eurozone to be the first step on its long road toward establishment of a world central bank with a world currency.  It fits earlier attempts to achieve this kind of world unification through political means, such as through The League of Nations, the United Nations, and regional confederations such as Rockefeller’s Trilateral Commission.  The procedure was to be regional organization first, transforming into world unification later.  Examples of the pattern are NAFTA, GATT, the G-20, the European Union…

America’s central bank, owned and controlled by an international banking cartel, appears lately, as you reveal, to be operating primarily through Goldman Sachs to achieve its world organization. And the reason they are doing it this way is because of America’s vast resources and her integrity-backed currency.  No other national currency has this kind of depth and clout.  The euro got its strength and support from America’s Federal Reserve System.

The good news is, at least in 1997, not all European central bankers and politicians were yet on board the plan, else the restrictions on entry into the eurozone would have been more easily transgressed—without, as you reveal, the endangerment of Mr. Piga’s safety, and the possibility of collapsing the Euro itself “under the weight of the decade of lies that have made it seem that the eurozone is an economically viable construct.”

Exposure is our greatest weapon.

Mon, 03/01/2010 - 01:43 | 249231 Anonymous
Anonymous's picture

Brooksley Born wondered aloud, [after being forced from government service mid-90's], what would be the reason for US Gov officials attacking her drive to institute controls on financial derivative activities.

Qui bono...The actions uncovered by Rigi could benefit a control-freak attempting some form of globalized control, as disparate states joined via EMU are subjects of central authority [headquartered in Belgium]. Control of HQs pervaded each of the definition!

[E.g.-England tried to insinuate control over all China via control over the Queen Dowager's court ca. 1900...but failed].

All just idle spec and fantasy, of course.

Mon, 03/01/2010 - 01:46 | 249233 Anonymous
Anonymous's picture

edit...that's Piga, not Rigi.

Mon, 03/01/2010 - 02:25 | 249243 Anonymous
Anonymous's picture

A linky here...
Brooksley Born,credit crisis Cassandra...

Mon, 03/01/2010 - 03:16 | 249255 Anonymous
Anonymous's picture

> we can easily venture some guesses as to which banks value their recurring counterparty arrangements more than human life

Seriously, if there was a threat to Piga's life it almost certainly came from the government half of the deal.

Mon, 03/01/2010 - 05:44 | 249271 Anonymous
Anonymous's picture

Um, what it counterparty N is Nomura. You know, Yen, Japan... uh... Nomura

Mon, 03/01/2010 - 07:29 | 249294 Anonymous
Anonymous's picture

I don't think GS was involved in this. I know personally that Romani Prodi and the centre - left governments were historically much closer to Merrill bankers. Hence I would rather expect ML to be counterparty "N".

More generally it was a smart deal. Its important to note that at no point did anyone break any explicit rules, much less "the law" (not sure which laws we would be talking about here since we are dealing with independent Sovreign nations, at most we can talk about EU regulations...)

The real issue worth thinking about here is a lesson of behavioral psychology(that we refuse to learn despite countless historical examples): if you as a "regulator" (read "multinational institution", "government", "central bank", whatever) attach a large economic gain/payoff to the formal satisfaction of a relatively arbitrary set of rules (read "Maastricht Criteria", read "some aspects of Basle accords which rewarding high credit ratings", read "poorly designed tax policies " etc.,) you are setting yourself up for being gamed. The bigger the stakes, the smarter the people hired to find a way to game you, whether legally (such as in this case) ot illegally (Enron).

If you put low-paid and fairly ill prepared bureaucrat to watch over the blind enforcement of an arbitrary rule you enrich bankers while building the foundations of a medium term financial disaster.

Blaming "unethical" bankers for helping sovreign governments flout the arbitrary, poorly designed rules of a bureaucratic institution which they themselves design is just stupid. Turn your attention to myopic, ill trained politicans and bureaucrats for the real culprits of the current mess.

Mon, 03/01/2010 - 08:26 | 249307 Anonymous
Anonymous's picture

Right. Do we still think that EU institutions did not know about it? Why Eurostat have not asked Italy and other countries in similar situations to disclose all off-balance sheets of the respective government 's operations and payments not booked as liabilities?
Why EU Institutions are still claiming that they did not know anything about Greece's deals?. Eurostat's teams to Greece were composed by Italians and Greeks...
Italy has a 5 times Greece's problem. Italy has about 1.8 trillion euros ($2.5 trillion) in "declared by statistics" public debt. The latter could be magnified by derivative contracts used by Italian municipalities and other swaps deals made in the past.

Mon, 03/01/2010 - 08:57 | 249316 Anonymous
Anonymous's picture

Get all swaps, CDS on the balance sheets and end this opaque charade.

Mon, 03/01/2010 - 09:27 | 249326 Anonymous
Anonymous's picture

To be candid, am ignorant when it comes to a lot of things discussed @ZH. I have been learning plenty since I starting reading ZH and today I was shocked to read this issue. Honestly, I don't understand swaps, currency swaps, negative interest rate deals and forward cash flow @present value notional values, etc., BUT I do understand one thing from reading the article and comments: This is Trouble. ??????? - Christ!

Mon, 03/01/2010 - 09:54 | 249339 Anonymous
Anonymous's picture

"...Counterpart N), but considering the critical similarities in the structuring of the swap contract to that used by Greece in 2001."

Not wanting to upset anyone in the derivatives world but 'critical similarities' does not bestow 'unique structuring capabilities' on a derivatives house. Far from it, most of these 'new structures' are dusted down old structures with new names and lifted from competitors. If only the big swinging derivatives houses could patent their about fee income. Anyways, back in 1995 and before, GS was not the derivatives powerhouse it may be perceived to be today. That honour fell to a house set up by a smart bunch of Bankers. Trust them to be lured by the smell of warm chocolate and cheese. They had acronyms aplenty and contacts to match...may be worth a sniff if you need to pin down that elusive Counterpart N.

Mon, 03/01/2010 - 11:23 | 249414 Anonymous
Anonymous's picture


Sometimes I wonder where Tyler was in the 1990s and early 2000s....

So - is your money on a certain house previously known as Solomon Brothers ?

Mon, 03/01/2010 - 12:59 | 249537 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Denninger this morning references this ZH post, and in another post he calls for a market crash!  Check it out (scroll down a few posts to see the comment on this ZH post):


Mon, 03/01/2010 - 13:40 | 249591 Marley
Marley's picture

See you in the morning
As the sun rise
It's just another day
For you to realize
The time is dread
Oh, Rasta Children
If you stay in these corners
They kill you with tax I say
I rather to be
Where the grass is green always
Sitting under a tree
Where there's a running stream yea
Yet never the less
It's because of the situation
Why we find ourselves
Down here inna babylon
And I know
We naugh go bow down low
And I know
We naugh go bow down low
For, eye see kill Miss Thomas pus
And the greedy dog lose the bone
Just can't find
The way to come home
For as he was crossing the bridge
So then he
Looked down in the waters
And he saw his shadow
And he opened his mouth
And his bone fell out
So when he opened his mouth
Then his bone fell out
So long.

Greedy Dog, Isreal Vibrations

Sat, 03/13/2010 - 07:20 | 264192 Anonymous
Fri, 04/16/2010 - 10:38 | 303885 Tom123456
Tom123456's picture

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Thu, 02/24/2011 - 01:13 | 991855 shawnlee
shawnlee's picture

I have not read the article, when I think it is going to be "involved" I will sometimes scan the comments for context clues to help me.

I could hug you right now. Thanks.

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shawnlee's picture

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sun1's picture

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sun's picture

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Tue, 07/12/2011 - 01:10 | 1446803 newdeals2
newdeals2's picture

which the offended parties plead ignorance of the fiscal inferno raging around them, kindled by lies, deceit, and blatant mutually-endorsed fraud, and instead, now facing themselves in the spotlight of public fury, put the blame solely on related party participants, such as, in a recent case, Greece and Goldman Sachs. Yet a 2001 report prepared by Gustavo Piga, in collaboration with the Council on Foreign Relations and the International Securities Market Association pass4sure ccsp | pass4sure ccvp \ a+ certification \ ase certification \ ccda certification \ ccent certification \ ccia certification \ ccie certification \ ccip certification \ ccna certification

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newdeals2's picture

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newdeals2's picture

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