Goldman Sachs discloses how credit derivatives risk is tied to European debt
Goldman Sachs, the fifth-biggest U.S. bank, by assets, disclosed for the first time the gross value of credit-default swaps that the firm purchased and sold relating to Greece, Ireland, Italy, Portugal and Spain: By the end of 2011, Goldman Sachs had sold $142.4 billion of single-name swaps (i.e. contracts that pay out in the event of a default) on the five countries -- so the firm said yesterday in an annual filing with the U.S. Securities and Exchange Commission. The company also had purchased credit-default contracts with a gross notional value of $147.3 billion on the nations' debt, the filing shows.
Goldman Scams Greece in Secret Greece Loan
Spyros Papanicolaou (head of Greece's Public Debt Management Agency) and his predecessor, Christoforos Sardelis, recently revealed details of derivative contracts that helped Greece mask its growing sovereign debt to meet European Union requirements. The two men said that neither they nor any other high-level Greek official understood what their country was buying, and so they were ill-equipped to judge the risks or eventual costs.
Goldman Sachs's instant gain on the transaction illustrates the dangers to clients who engage in complex, tailored trades that lack comparable market prices and whose fees aren't disclosed.
"Sardelis couldn't actually do what every debt manager should do when offered something, which is go to the market to check the price," said Papanicolaou, who retired in 2010. "He didn't do that because he was told by Goldman that if he did that, the deal is off." Source article
How Goldman ever so profitably set Greece up for implosion
In this video clip, Greg Palast explains this to Dylan Ratigan and his sidekicks, who then force Greg to admit that the Greek government was, at least inadvertently, complicit in setting Greece up for financial and economic disaster.
J.P. Morgan gets in on this cornucopian ripoff -- by joining Goldman in keeping Italy derivatives risks hidden
JPMorgan said in its third-quarter SEC filing that more than 98 percent of the credit-default swaps the New York-based bank has written (or issued, for its investor/customers), on the PIIGS (Portugal, Ireland, Italy, Greece & Spain) debt, is balanced by CDS contracts purchased (by JPMorgan) for the same type of bonds (also purchased by JPMorgan). All these many insurance contracts will (supposedly) pay off if the bonds go belly up, i.e. if and when these countries default on the immense loans they've taken out (by selling those bonds). JPMorgan said its net exposure was no more than $1.5 billion, with a portion coming from debt and equity securities. But the company didn't disclose gross numbers or how much of the $1.5 billion came from swaps, leaving investors wondering whether the notional value of CDSs sold could be as high as $150 billion or as low as zero.
Bank runs will become daily news in 2012. The fear index is already running high. A lot of banks are "under water' with debt. The stunning info-graphics here illustrate, breathtakingly, the absolutely gargantuan amount of money that banks in Europe and the US have loaned to Portugal, Ireland, Italy, Greece & Spain (the so-called PIIGS) -- the very countries that have surreptitiously gobbled up trillions in borrowed money and that are least likely to pay any of it back!
So what happens when they default or threaten to default? Answer: Either the central banks and/or governments of the US and Europe start creating trillions of new dollars out of thin air (leading to unprecedented inflation) so as to reimburse the banksters and bondholders, OR the world economy goes into a major depression as credit freezes up and investors everywhere cash out of their investments.