Goldman Presents The European Flowchart Of Life (Happiness) And Death (Default Misery)

Tyler Durden's picture

Goldman knows a thing or two about European equilibria (and the lack thereof): after all, it was its "bleeding financial innovation edge" currency swaps that allowed perpetual fiscal transgressors such as Greece (and who knows who else) to be allowed into the Eurozone in the first place despite never meeting the required Maastricht criteria of 3% deficit/GDP in the first place. Which is why we are happy to bring to our readers not only the latest in peak amusement in the form a podcast from GSAM head Jim O'Neill, but GSAM's "European Game Of Life" where in flowchart form, the Squid summarizes the various good/bad equilibria outcomes for Europe that lead to either Happiness or Misery. Frankly, we fail to see how any country in the European periphery, and soon, core, does not belong in the bottom left. But we are confident that Goldman will tell us, even as it hatches yet another scheme with its top clients on how to short the countries that paid Goldman the big bux for the pig lipstick a few short years ago...

From Goldman:


Multiple equilibria could arise from the vulnerability of sovereign borrowers who constantly have to refinance themselves. The good equilibrium is where yields are low, refinancing costs are low and debt sustainability is high. The bad equilibrium is where yields rise, refinancing costs rise and debt sustainability falls. Once a country moves into the bad equilibrium, bond prices accelerate to the downside, with lower valuations justifying increasing yields. Primary markets dry up, bonds settle at recovery values and, in the absence of support from the IMF, the country defaults.


The diagram shows the decision tree leading to a country remaining in the Euro (Happiness) or exiting from the Euro (Misery). In this framework default and Euro membership are separate decisions. A country exits the Euro if the ECB stops providing its banks with liquidity or if the country chooses to exit from the Euro.


Taking Greece as an example, we start at the top and ask if there is enough of a growth model for Greece to stand by itself. If the market thinks “yes”, then it moves to the good equilibrium and it does not need any more ECB liquidity support. If the market thinks “no”, then the ECB provides more liquidity support until either inflation concerns rein back the ECB’s liquidity operations or Greece chooses to leave the Euro. If neither of these happens, we repeat the cycle, asking again if there is enough of a growth model for Greece to stand by itself.


Other troubled countries today are also in a transition state between the good and bad equilibria and are essentially on temporary life support from the IMF, EU and ECB. In addition to Greece, Ireland and Portugal are currently getting liquidity support under adjustment programmes administered by these institutions. Italy and Spain are getting liquidity support through the ECB’s secondary market bond buying programme. We hope these countries can make sufficient adjustment to move firmly back into the good equilibrium of strong growth, low deficits and low bond yields.

Full GSAM report - link

And here is the most recent Jim O'Neill (of GSAM and BRIC fame) podcast:

20111007 JimONeill by zerohedge

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Cynical Sidney's picture

forget bout gs for a sec; i hear STT and BK are going down, can somebody confirm? we need news updates on weekends.

Zeilschip's picture

When Greece defaults, GS will get sued all the way to Chapter 11. It's time to short the Squid.

X.inf.capt's picture

aint karma a bitch....


JPM Hater001's picture

I already did.  Took $4000 and turned it into $16000.  Unfortunately I didnt want to get caught with my investment bank in a solvency crisis or it would be $32000.

Bird in hand stuff.  Dont get caught with the right Put call and lose it all in a liquidity crisis.  Reinvest right away but 3 days to settle.

Market Efficiency Romantic's picture

In principle I agree, but the squid never drowns, physically impossible.

When JPM was lifted to mega bank to catch up to Citi in the Glass/Steagal BS move, the elite lost its special forces. JPM's new status, organizational structure, etc. would no longer have allowed for the discretion required for macro-economic black ops. 

What would have been easier than to recruit GS to that vacant position in the elite's military-like structure. Despite their intellectual power and performance, GS had in the elite's stratosphere always been perceived to only be No. 2. Their disadvantageous attributes compared to JPM; objective consultantancy without a political or power bias (which is needed to direct, manipulate and overrule analytically objective business decisions). Assuming this is a mere speculation, what would have been a necessary capital and organizational restructuring of GS to reward GS partners for the commitment and assure the elite's power in the organization: Incorporation and IPO,

The merits of GS new position in the elite's hierarchy: From fraudulently planting flawed and doomed sructures to revealing them, igniting them and leveraging the explosion, GS has been at the core of the '08 financial crisis, the European debt crisis and appears to maintain that not so honourable spot in the currently growing commodity and developing econ bubbles.

As with any US black ops unit, don't count on jurisdicial prosecution within the power system ordering black ops.

Zeilschip's picture

I agree that JPM will never (be allowed to) go down, for what they accomplished late 19th/early 20th century. The Squid however has contributed zilch to the US. If a real opportunity presents itself, vultures will feast on its carcass.

I am Jobe's picture

Squid must have taken a short position. Maybe they are losing their touch, God is cruel

Poor Grogman's picture

The squid gets paid for this?

I am Jobe's picture

I think they feel left out and want some company at this point.

DormRoom's picture

the squid underestimates a global recession in its flowchart, and the effect it'll have on tax revenue,  debt:gdp,  debt:tax revenues of sovereigns.


Also, it ignores the plight of Japan, especially to the yen, with further global monetization, and  the next target for the cds wolfpack.  Everyone is focused on Europe, but Japan is in the Bill Gross's ring of fire, and the next  sovereign likely to experience a crisis.


unless energy becomes extremely cheap, we find an alien civilzation to trade with, or a new multi-trillion dollar market arises, that isn't a bubble, in the long run, we are clusterfucked.

SheepDog-One's picture

But the squid PLANNED the global recession.

DormRoom's picture

nah.. The debt bubble originated with Alan Greenspan.  The Squid just took the opportunity of free money, and a political era of deregulation.


Everyone should send Alan Greenspan a note telling him how the debt bubble has affectd their lives.  He didn't believe in bubbles, or the need to pop them.  So we got the most massive debt bubble in the history of civilization.  The economic adjustment from this debt bubble is still being played out.

SheepDog-One's picture

OH, sure....Alan Greenspan did it on his own. I didnt know Alan Greenspan was in charge in 1913, and even far further back than that.

DormRoom's picture



American debt started to decline after WWII.  It wasn't until Greenspan was in charge did debt start to sky rocket.



DormRoom's picture

The Economic Consequences of Maintaining the Debt Peace.

zorba THE GREEK's picture

The EZ and the EU should ban Goldman from Europe, after all, Goldman is as responsible as anyone

for the current crisis. Fraud is still fraud, no matter how big you are.

I am Jobe's picture

Wehn companies have enough lawyers to defend fraud as legitimate practices who gives a fuck. Whore Street sees nothing wrong in looting, stealing, lying and killing.

reader2010's picture

Give us depression and give us liberty.

I am Jobe's picture

Your soul belongs to the Vampire.

DormRoom's picture

Goldman Sachs: "the spice debt  must flow!"

I am Jobe's picture

Yeap, the Spice must flow .Walk without rhythm and you won't attract the worm

Lord Welligton's picture

"Transitory State" ...........

Dear God.

SheepDog-One's picture

Lets see, now that the Western World is running 100% debt to GDP ratios, theyre expected to go to Gamblers Anonymous rehab and kick the free money habit?

May as well hope for crackheads to open their own detox clinic...just not gonna happen, ever.

High Plains Drifter's picture

have the people assemble at 85 broad street. its time for a weenie roast........

SheepDog-One's picture

Tyler, wheres the 'Steve Liesman' step on this flowchart?

Schmuck Raker's picture

I think all this B.S. is starting to make me physically ill.

SheepDog-One's picture

The contractions are getting faster and closer, fear not, we're about to see the big one any day now.

Market Efficiency Romantic's picture

With Greek funds running out this week (Oct 13), Slovakia's no in parallel killing the then eminently important EFSF operation to recapitalize Greek banks and a deterioration in the French banking system thanks to the Dexia-induced doubts re France's AAA rating create an undisputable momentum. I cannot think of any approach to avoid the exitus before the end of the week. 

Well, sure there is always the ECB (currently OOF), ok in that case the FED, but the parallelism of events paired with the regional and institutional-level distribution of the fire sources will make it close to impossible even for central banks to cover up the resulting mess.

I did not even include second and third degree elements in the domino chain such as doubts about EFSF AAA-rating, Belgian's accelerated move to the lower end of the solvency spectrum, Portuguese, Italian and Spanish bank recepitalization needs, etc. All these effects would trigger rather shortly after an uncontrolled Greek default.

But hey, politicians these days have become more and more creative in their prolonging tactics. Even though, the troika is not amused with Greek progress, they state to impossibly have their report ready this week, which in the mindset of the heads of EU nations will mean, ok, we send another 8 billion (on the flawed argument that a breach of greek consessions could not be proven in time... strange argument for provision of funds, don't you think so?)

Market Efficiency Romantic's picture

The quarterly payments to Greece originally agreed upon by EU, ECB and IMF.

Positive inspections of the austerity progress had previously been declared to be precondition for further payments to Greece.

High Plains Drifter's picture

remember this? squid employees requesting gun permits........ha ha ha ha........

chump666's picture

Goldman must be bleeding, they made some awful plays eg long EUR, China will be bid forever etc.

I wanna see these a-holes think volatility has subsided and then getting f*cking destroyed on a long position again, once the world goes volatility mad (last mths of 2011).  Then when China pops it takes out the lazy, greedy investment banks...BOOM!

navy62802's picture

That's a nice try at explaining the situation. But no one really knows what's going to happen once a nation in the EU defaults. No one knows the exposure of the various players in the game. So it's presumptuous in my opinion to put out something like this. But I guess as long as the "authorities" put out nice tidy charts like this, everyone who's not an "authority" will continue to have a warm and fuzzy feeling that the situation is under control. That's fine. Just gives me more latitude to make the moves I want.

lynnybee's picture

who is this guy !?    never heard his voice before, first time ........... what a snooty-snoot .      

Zero Govt's picture

" it hatches yet another scheme with its top clients on how to short the countries that paid Goldman the big bux for the pig lipstick a few short years ago.."

Why not use the Credit Ratings Agencies again? Afterall Goldman Sucks used them for the sugary lipstick applied to the fraudulent turdloads of US mortgages and not a single one of them were cuffed and jailed.. better than average chance the CRA tricksters can do it (get away with it) again

It's "Gods Work" cooking books, mortgage fraud and fleecing clients and society (all while being insolvent).. Lloyd should write a book, 'How to get ahead while all about are losing their shirts on account of me' ...catchy title that!

sitenine's picture

Just checking.  This is a real Squid flow diagram right?

It's getting to be so that I can't even tell whether these charts are for real or by WB7.

Zero Govt's picture

Banzais Goldman Sucks charts usually have a dead giveaway ...Lloyd Blankfein doing Gods Work in a Ronald McDonald outfit with financial mushroom clouds exploding in the background

..otherwise you're quite right, the B7 and GS charts are pretty near identical since 2008 

HardlyZero's picture

Modern day Bread and Circus (Ben and the Money Printers)...when do the Christians and Lions come out and get thrown to the wolves and German Shepards ?

Atomizer's picture

David Hawley has had two bowls of Count Chocula Cereal  and has forgotten to properly to wear his suit coat.


David Hawley, Deputy Director, External Relations Department, IMF


SDRII's picture

The only thing missing is "need a miracle"

Atomizer's picture

Well done WB7. Did you watch my link above. Four stars to one bloke that questions the IMF. Again, changing the future rules and regulations are masked as reform thru deception.

Guru.'s picture

Good Chart. Even in GS chart, All 'NO' Decisions' from the 'Start' leads back to 'Start'!. So theoretically any 'YES" from here will lead to bottom left as predicted by Tyler.


P.S. Finally I entered into club