It's Goldman Sachs' world, we just happen to live in it.
That rather unfortunate, yet exceedingly accurate, characterization of the global financial and geopolitical landscape seemingly becomes more true with the passage of time and perhaps nowhere is it more evident than Europe, where the common currency experiment (which never had any hope of working without some semblance of a fiscal union) is on the brink of collapse.
As we noted in "The Biggest Winner From The Greek Tragedy [10]," the losers from the disintegration of the EMU are ordinary, common, taxpaying Europeans who enjoyed a few brief years of artificial prosperity, which in retrospect was entirely due to debt, masked well by the "currency swaps" and other financial engineering concocted by banks such as Goldman Sachs, in clear violation of the Maastricht treaty which is now a long-forgotten memory of the founding ideals behind the Eurozone.
As a reminder, Greece’s EMU membership was in no small part due to a Faustian bargain with Goldman.
Back in 2001, the bank swapped dollar- and yen- denominated Greek debt for euros using a possibly made-up exchange rate that effectively allowed Greece to artificially reduce its debt-to-GDP ratio.
Now, with Greece teetering on the edge of economic oblivion, the beleaguered country could look to sue Goldman in an effort to recoup hundreds of millions in what are being presented as ill-gotten gains. Fittingly, it is a former Goldman banker who has apprised the Greek government of the possibility that they may have a claim. Here’s The Independent with more [11]:
A leading adviser to debt-ridden countries has offered to help Athens recover some of the vast profits made by the investment bank.
The Independent has learnt that a former Goldman banker, who has advised indebted governments on recovering losses made from complex transactions with banks, has written to the Greek government to advise that it has a chance of clawing back some of the hundreds of millions of dollars it paid Goldman to secure its position in the single currency.
Greece managed to keep within the strict Maastricht rules for eurozone membership largely because of complex financial deals created by the investment bank which critics say disguised the extent of the country’s outstanding debts.
Goldman Sachs is said to have made as much as $500m from the transactions known as "swaps" It denies that figure but declines to say what the correct one is.
The banker who stitched it together, Oxford-educated Antigone Loudiadis, was reportedly paid up to $12m in the year of the deal. Now Jaber George Jabbour, who formerly designed swaps at Goldman, has told the Greek government in a formal letter that it could "right historical wrongs as part of [its] plan to reduce Greece’s debt".
Jabbour was laid off from Goldman in 2008 (he apparently left on good terms although earlier in the year he described a $100 million deal the bank had orchestrated with the Libyan Investment Authority as "a bit scary" in an e-mail to a colleague) after which he started his own advisory firm.
The NY Times has more [12] on the former Goldmanite's post-Wall Street assignments:
In December 2009, Ethos won a contract to work with Metro do Porto, a Portuguese state-owned train and subway company. Mr. Jabbour’s assignment was to untangle a pair of offsetting derivatives contracts with Goldman Sachs and Nomura that were meant to help manage interest rate risk on 126 million euros of debt but instead, at different points, incurred expected losses greater than the amount of the loan itself, according to documents released in the parliamentary inquiry related to the contracts.
At the time, Goldman and Nomura told Metro do Porto that it would cost it €26 million to cancel the identical elements of the contracts. Mr. Jabbour helped to restructure them, and instead of paying Goldman and Nomura, Metro do Porto earned back nearly €20 million to cancel the offsetting parts of the trades, according to emails and presentations made available as part of the inquiry.
At Ethos, in addition to representing Metro do Porto, he reviewed swaps in the county Seine-Saint-Denis in France and did some work in Italy, according to media reports in Portugal.
If the Libyan Investment Authority has its way, Mr. Jabbour will also play a role in the suit it has brought against Goldman.
In a 2013 interview with Público, Jabbour said the following about his new venture: "having worked in banking, I noticed that banks took advantage of public sector entities when dealing in complex and structured transactions, including swaps and derivatives, therefore, I set up my business, Ethos, in 2009 to alert, assist and increase the awareness of public sector entities when dealing in these transactions."
Yes, banks often do "take advantage of public sector entities" (and all manner of other entities and individuals for that matter) by using opacity and complexity to structure deals that overwhelming favor the banks' interests over those of the client and indeed that may have been exactly what happened in the Goldman/Greek deal, which is why, as we noted last week, it's particularly interesting that the man in whose hands some €110 billion in Greek deposits now rests was Vice Chairman and Managing Director at Goldman from 2002 to 2005.
We can only hope that if Greece does indeed decide to take Mr. Jabbour up on his offer to help clawback some of the half billion euros the bank reportedly pocketed from helping to hide Greece's debt - which in turn allowed the country to join a currency union it had no business joining thus ensuring its eventual expulsion and the attendant economic collapse - that the discovery process will help shed some light on whether the man now in charge of the ECB personally oversaw and endorsed the perpetuation of the Greek lie.
