I think this matter of banks having facilitated Greece's hiding of the magnitude of its debt is going to get a lot more interesting before its all over.
Here's an update on the story from the NY Times: "Banks Bet Greece Defaults on Debt They Helped Hide." Here's the short story:
- A number of European banks and America's own Goldman Sachs engineered a number of complex currency swap transactions that allowed Greece to understate its debt.
- Since these banks had inside knowledge that Greece's financial position was much less secure than it appeared, being good opportunists, the went out and bought credit default swaps (insurance against default) on Greece's debt. So, they made big fees setting up the scheme, and they stand to benefit if the scheme falls apart.
- Who did they buy the credit default swaps from; i.e., who was the unwitting sucker to take the bet? Probably multiple issuers, but it looks like the brain trusts at AIG were among them, which means that the American taxpayer would be on the hook in the case of Greece's default, given that the U.S. now owns 80% of AIG.
- So, if Greece gets closer to default, this means that the U.S. either bails out Greece to avoid losses at AIG, or it just steps up and bails out AIG yet again. Once again, the financial industry wins, and the taxpayers lose.
From a
translation of an investigative piece from the German newspaper
Frankfurter Allgemeine Zeitung: London investment bankers name AIG as a further CDS-seller. That company had to be nationalized during the financial crisis due to its having written insolvency insurance on American mortgages. This debt-load would have led to the collapse of the world’s biggest insurer. Prior to the financial crisis AIG is said to have widely held State credit-risk. If yet-larger insurance positions on Greece exist, then the American government would have a strong interest in preventing that country’s insolvency.
