From 2001 through November 2009 (note the date -- a full year after Lehman) Goldman created financial instruments to hide European government debt, for example through currency trades or by pushing debt into the future. But not only did Goldman and other financial firms help and encourage Greece to take on more debt, they also brokered credit default swaps on Greece's debt-making income on bets that Greece would default. No doubt they also took positions as the financial conditions deteriorated-betting on default and driving up CDS spreads.
But it gets even worse: An article by the German newspaper, Handelsblatt, ("Die Fieberkurve der griechischen Schuldenkrise", Feb. 20, 2010) strongly indicates that AIG, everybody's favorite poster boy for financial deviancy, may have been the party which sold the credit default swaps on Greece (English translation here).
Generally, speaking, these CDSs lead to credit downgrades by ratings agencies, which drive spreads higher. In other words, Wall Street, led here by Goldman and AIG, helped to create the debt, then helped to create the hysteria about possible defaults. As CDS prices rise and Greece's credit rating collapses, the interest rate it must pay on bonds rises-fueling a death spiral because it cannot cut spending or raise taxes sufficiently to reduce its deficit.
Having been bailed out by the Obama Administration, Wall Street firms are already eyeing other victims (and for allowing these kinds of activities to continue, the US Treasury remains indirectly complicit, another good reason why one shouldn't expect any action coming out of Washington). Since the economic collapse is causing all Euronations to run larger budget deficits and at the same time is raising CDS prices and interest rates, it is easy to pick off nation after nation. This will not stop with Greece, so it is in the interest of Euroland to stop the vampires now.
With Washington unlikely to do anything to constrain Goldman, it looks like the European Union, which is launching a major audit, just might banish the bank from dealing in government debt. The problem is that CDS markets are essentially unregulated so such a ban will not prevent Wall Street from bringing down more countries-because they do not have to hold debt in order to bet against it using CDSs. These kinds of derivatives have already brought down an entire continent -- Asia -- in the late 1990s , and yet authorities are still standing by and basically doing nothing when CDSs are being used again to speculatively attack Euroland. The absence of sanctions last year, when we had a chance to deal with this problem once and for all, has simply induced even more outrageous and fundamentally anti-social behavior. It has pitted neighbor against neighbor -- with, for example, Germany and Greece lobbing insults at one another (Greece has requested reparations for WWII damages; Germany has complained about subsidizing what it perceives to be excessive social spending in Greece).
Of course, as far as Greece goes, the claim now is that these types of off balance sheet transactions in which Goldman and others engaged were not strictly "illegal" under EU law. But these are precisely the kinds of "shadow banking transactions" that almost brought down the global financial system 18 months ago. Literally a year after the Lehman bankruptcy -- MONTHS after Goldman itself was saved from total ruin, it was again engaging in these kinds of deals.
And it wasn't exactly a low-level functionary or "rogue trader" who was carrying out these transactions on behalf of Goldman. Gary Cohn is Lloyd "We're doing God's work" Blankfein's number 2 man. So it's hard to believe that St. Lloyd did not sanction the activities as well in advance of collecting his "modest" $9m bonus for last year's work.
thinkahol * on 13 Sep 11Gilens examines the extent to which different social groups find their policy preferences reflected in actual government policy and the variation in these patterns across time and policy domains. For example, when Americans with low and high incomes disagree on policy, are policy outcomes more likely to reflect the preferences of affluent Americans? If so, does the advantage of more affluent Americans differ over time (e.g., depending on which party controls the congress and presidency) or across policy domains? Similarly, are Republicans or Democrats in the population more likely to get the policies they prefer when their party is in control of national political institutions? Because his database contains policy preferences broken down by income, education, partisanship, sex, race, region, religion, and union/non-union status, Gilens will be able to address a multitude of questions concerning government responsiveness to public preferences. For this study, Gilens uses data on public preferences and policy outcomes based on 754 national survey questions from 1992 through 1998 and restrict his attention to divergent policy preferences of low- and high-income Americans. Each of these survey questions asks respondents whether they support or oppose some proposed change in U.S. national policy, and he has used historical information sources to determine whether each proposed change occurred or not (within a four-year coding window from the date of the survey question). When Gilens looks separately at respondents with different incomes, he finds that the higher an individual's income, the more likely it is that government policy will reflect his or her preferences. This relationship, however, does not increase in a linear fashion: the difference between poor and middle-income Americans is modest compared with the difference between those with middle and high incomes. In other words, it is not that the poor are especially less likely than middle-income Americans to get
