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Saturday, February 13, 2010

Wall Street and Greece Debt

by Calculated Risk on 2/13/2010 07:18:00 PM

From Louise Story, Landon Thomas Jr. and Nelson D. Schwartz at the NY Times: Wall Street Helped to Mask Debts Shaking Europe. A brief excerpt:

In 2001, just after Greece was admitted to Europe’s monetary union, [Goldman Sachs] helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
...
Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.
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“Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it,” said Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies.

Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal.
The quote from Hardouvelis is on target. Many on Wall Street just care about short term fees and large bonuses, and politicians just want to push the problems into the future. A perfect match ... except for all the people who are eventually hurt by their actions.