Greek- Goldman Sachs swaps

Just What Is Mario Draghi Hiding?

ECB Declines To Respond To Bloomberg FOIA Request On Greek-Goldman Swaps

Zero Hedge,

14 June, 2012

Back in February 2010, in the aftermath of the discovery that none other than Goldman Sachs had facilitated for nearly a decade the masking of the true magnitude of non-Maastricht conforming Greek debt, Zero Hedge first identified the prospectus for a Goldman underwritten swap agreement securitization titled Titlos PLC. We titled the analysis "Is Titlos PLC The Downgrade Catalyst Trigger Which Will Destroy Greece?" because for all intents and purposes it was: at that time a rating agency downgrade of the country would lead to a chain of events which would make billions in assets ineligible for ECB collateral, forcing a massive margin call on the National Bank of Greece, which likely would have precipitated a Greek default there and then.

In retrospect, considering the two years of pain that Greece has already suffered, this may have been the better option as the country would have taken its bitter medicine, and become a second Iceland case study by now, growing at a brisk pace, unencumbered by debt, free from the clutches of the Euro, instead of having its economy collapse by nearly 10% every year without any resolution in sight.

But that is irrelevant for the time being: what is relevant is Titlos itself, and what Bloomberg did after we posted the analysis. It turns out that following in the footsteps of Mark Pittman,Bloomberg sued the ECB under Freedom of Information rules requesting "access to two internal papers drafted for the central bank’s six-member Executive Board. They show how Greece used swaps to hide its borrowings, according to a March 3, 2010, note attached to the papers and obtained by Bloomberg News. The first document is entitled “The impact on government deficit and debt from off-market swaps: the Greek case.” The second reviews Titlos Plc, a securitization that allowed National Bank of Greece SA, the country’s biggest lender, to exchange swaps on Greek government debt for funding from the ECB, the Executive Board said in the cover note. The ECB's response: "The European Central Bank said it can’t release files showing how Greece may have used derivatives to hide its borrowings because disclosure could still inflame the crisis threatening the future of the single currency."

Maybe.

But what is far more likely is that the reason why the ECB, headed by none other than former Goldmanite Mario Draghi, is desperate to keep these documents secret is for another reason. A very simple reason:

Mario Draghi - 2002-2005:  Vice Chairman and Managing Director at Goldman Sachs International

In other words, Draghi was a key executive at Goldman at precisely the time when none other than Goldman Sachs was hired to create and facilitate the active hiding of the true extent of the Greek debt problem.

In yet other words: could it be that none other than the head of the European Central Bank is refusing to cooperate with a Bloomberg FOIA, something even the US Federal Reserve ultimately succumbed to which led the revelation that the Fed had handed out trillions in secret loans to banks all around the world  - and that includes tens of billions in under the table loans to JPM, contrary to Dimon's defense that he did not need the TARP money in Senate yesterday: he did, and much more, but since when is perjury a crime before a kangaroo court of bought politicians:

But this is not about JPM for once. Let's go back to that infernal mollusc which everyone loved to hate in all of 2009 and 2010 until JP Morgan became the world's Fed-backstopped, prop trading pinata, and the response that the ECB did provide to Bloomberg as a reason for not handing out the required information:

Disclosing the files when Bloomberg News first sought them in 2010 would have “fueled negative perceptions about Greece’s ability to honor its debt,” ECB lawyer Marta Lopez Torres said at a hearing of the European Union’s General Court in Luxembourg today. “It’s the same now with Spain” which “isn’t able to borrow money,” she said. “Markets are reacting in very volatile ways. It’s affecting the euro economy.”

In other words from Mutual Assured Destruction as a means to push through policy propaganda, M.A.D. is now the only option for heads of central banks from being exposed to the world as the very same people who enabled the current financial collapse in the first place?

Now we see...

More from Bloomberg, which explains the reasoning for demanding access to the two abovementioned docs:

These documents “played a role” in shaping policy and “highlighted there were issues” when the ECB undertook a review of its eligibility criteria for collateral in its funding operations, the ECB lawyer told the court. 

The cornerstone of the ECB’s response to the crisis is to give banks as much money as they needed in return for collateral. In October 2010, the ECB changed the rules on the asset-backed securities it accepted and gave itself more discretionary power to reject collateral if necessary.

“The public has a right to know how EU authorities may have allowed Greece to hide its deficit, which helped trigger Europe’s sovereign debt crisis,” said Matthew Winkler, editor- in-chief of Bloomberg News. “Greater transparency results in more accountability, and we seek this information to understand how this debt debacle unfolded in an effort to avoid repeating it.”

The Greek government didn’t originally disclose the swaps, designed to help it comply with the deficit and debt rules it agreed to meet when it joined the euro in 2001. The swaps allowed the country to increase borrowings by 5.3 billion euros, Eurostat, the EU’s statistics agency, said in November 2010.

In April 2009 -- seven months before the Greek crisis erupted -- ECB officials spotted “a swap operation in unusual terms,” according to the March 2010 document.

And back to Goldman, who in the 2001 onward period was the sole bank provider of shady currency swap transactions:

In the largest derivative transaction disclosed so far, Greece borrowed 2.8 billion euros from Goldman Sachs Group Inc. in 2001 through a derivative that swapped dollar- and yen- denominated debt issued by the nation for euros using a historical exchange rate, a move that generated an implied reduction in total borrowings.

“The Greek authorities had never informed Eurostat about this complex issue, and no opinion on the accounting treatment had been requested,” Eurostat, the Luxembourg-based statistics agency, said in a statement. The watchdog had only “general” discussions with financial institutions over its debt and deficit guidelines when the swap was executed in 2001.

“It is possible that Goldman Sachs (GS) asked us for general clarifications,” Eurostat said, declining to elaborate further.

 Spokesmen for Goldman Sachs in London couldn’t immediately comment after the hearing.

How about asking that other Goldman Sachs spokesman, Mario Dragi?

Perhaps at the next ECB press conference journalists can finally grow a pair and start asking the really important questions instead of listening to the violins as the European titanic is steadily sinking?