A few days ago The Nation published an article by Robert Reich detailing how Goldman Sachs profited not only from the Greek debt crisis, but the Detroit water crisis, interest rate swaps in Oakland and the implosion of the world economy.
Let’s start with Greece:
In 2001, Greece was looking for ways to disguise its mounting financial troubles. The Maastricht Treaty required all eurozone member states to show improvement in their public finances, but Greece was heading in the wrong direction. Then Goldman Sachs came to the rescue, arranging a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.
As a result, about 2 percent of Greece’s debt magically disappeared from its national accounts…
Then the deal turned sour. After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the country’s debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion. In 2005, the deal was restructured and that 5.1 billion euros in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the European Central Bank and a major player in the current Greek drama, was then managing director of Goldman’s international division.
Then Detroit and Chicago:
Three years ago, the Detroit Water Department had to pay Goldman and other banks penalties totaling $547 million to terminate costly interest-rate swaps. Forty percent of Detroit’s water bills still go to paying off the penalty. Residents of Detroit whose water has been shut off because they can’t pay have no idea that Goldman and other big banks are responsible. Likewise, the Chicago school system—whose budget is already cut to the bone—must pay over $200 million in termination penalties on a Wall Street deal that had Chicago schools paying $36 million a year in interest-rate swaps.
A deal involving interest-rate swaps that Goldman struck with Oakland, California, more than a decade ago has ended up costing the city about $4 million a year, but Goldman has refused to allow Oakland out of the contract unless it ponies up a $16 million termination fee—prompting the city council to pass a resolution to boycott Goldman. When confronted at a shareholder meeting about it, Blankfein explained that it was against shareholder interests to tear up a valid contract.
And then this latest turn of events in Greece where they decidedly voted against the EU bailout, bringing about a virtual halt to credit lines with the IMF and the rest of Europe. Banks have been shuttered and ATM withdrawals have been limited because of the shortage of euros. Some here at home applauded the people of Greece for saying to more austerity.
This has been years in the making. Since 2012 there are places in Greece where not a single euro has changed hands–with many Greeks not even carrying any money at all. Money had “been usurped.”
Some areas created their own currency while others created bartering networks.
Greece’s deepening economic crisis has brought new users. With ever more families plunging into poverty and despair, shops, cafes, factories and businesses have also resorted to the system under which goods and services – everything from yoga sessions to healthcare, babysitting to computer support – are traded in lieu of credits.
Over the years the services and products that are included in this bartering system have slowly expanded–with never any money of any kind changing hands.
The Athens Time Bank, for example, allows members to collect credits by offering an hour of their time to someone who needs their services. The bank boasts doctors, dentists, electricians, yoga teachers and plumbers among its ranks, but the most popular service on offer is psychotherapy – highlighting how years of austerity have eaten away at more than just savings and living standards.
They have also created something they call the “solidarity economy” that puts consumers directly in touch with the growers of their potatoes, rice, flour, fruit, honey, cheese, the producers of the laundry detergent and other household essentials that cut out the middle men and make it more affordable–about 1/3 to 1/2 less–than traditional retail stores.
Forgoing banks, traditional currency, and cutting out middle men is something that has been gaining popularity in Argentina as well. Truth-out reports:
The exchange of services began due to the total economic collapse, with people either without money or unable to access money they once had. People could no longer purchase goods or services, thus they began to exchange everything from the repair of their water pipes or roof tops to the increasing need for therapy. Exchanges developed with most every service imaginable. In some places one services was traded for another, with the two parties deciding the amount of time or type of service that was an equal exchange. In others, services were traded for goods… one of them made empanadas and traded them for apartment repairs, while the other took photos in exchange for bus tickets or other things they needed.
Argentina and Greece are examples that show us that we don’t need the big banks and, in fact, money as we know it and our current financial system are relatively new to our society (emphasis on the word “system”). On March 8, 1817 the New York Stock Exchange was founded. On February 25, 1863, President Abraham Lincoln signed the National Currency Act (renamed as the National Banking Act) which for the very first time established the sole currency of the United States.
Goldman Sachs has been a player in the American financial system from the early days. A brief history:
– Goldman Sachs was founded in 1869.
– In 1906 Goldman was instrumental in starting the IPO business.
– In 1929 Goldman went into a free fall when the stock market collapsed.
– In 1930 Sidney Weinberg took over Goldman Sachs.
– By 1956 they were back and big in the IPO business.
– By 1969 they had their stocks and bonds trading business back into full swing.
– In 1976 they further expand their investment banking business.
– In 1981 they acquired Aron and Co., a commodities trading firm and their current CEO Lloyd Blankfein.
– In 1990 they expand into global operations and mergers and acquisitions.
– In 1994 they have a serious internal crisis, suffering huge losses in the bond market.
– In 1999 Henry Paulson takes over as CEO, they become major underwriters of tech company IPOs, and they go public themselves being valued at $33Billion.
– In 2006 President George W. Bush makes Henry Paulson Secretary of the United State Treasury. Current CEO Lloyd Blankfein steps in as Goldman Sachs CEO.
– In 2007 Goldman reports record profits of $11.6Billion on revenue of $46Billion–on the backs of unsuspecting mortgagees and the housing bubble.
– In 2008 Goldman Sachs
– – a) becomes a bank holding company entitling it to greater government protection
– – b) the Federal Reserve gives Goldman 100 cents on the dollar for its trading position with AIG
– – c) Warren Buffett invests $5Billion in Goldman
– – d) The US Government buys $10Billion worth of Goldman shares as part of TARP
– In January 2010 Goldman reports yet another record profit of $13.39 Billion, setting aside $16.19Billion for compensation and benefits
– In April 2010 the SEC charges Goldman with deceiving clients by selling them mortgage backed securities designed by a hedge fund run by Henry Paulson.
In July 2010 the New York Times reported that Goldman Sachs settled with the SEC for $550Million. Who got that money? And why only $550Million when they received $10Billion from the taxpayers?
Suspiciously, the history trails off there… but we saw many of their staff get hired on at the White House with the Obama Administration.
Why are we allowing this to continually happen? It’s not like we don’t know that they’ve done it before and they’ll do it again. Why not disband the banks and get back closer to bartering?