Felix Salmon points us to this new Der Spiegel article:
Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. "Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.
Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.
Fictional Exchange Rates
Such transactions are part of normal government refinancing. Europe's governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.
But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.
This credit disguised as a swap didn't show up in the Greek debt statistics. Eurostat's reporting rules don't comprehensively record transactions involving financial derivatives. "The Maastricht rules can be circumvented quite legally through swaps," says a German derivatives dealer.
From what I understand of the Maastricht standards, they are far less stringent than banking regulation, even in places where banking regulation is relatively lax. Is the premise that governments are more trustworthy and more transparent? Or is the premise that governments should be allowed to do what banks cannot?
Here is gloss on the Sophoclean chorus on debt; you may need to scroll down to the paragraph on lines 151-58.
Isn’t total Greek debt like $250 billion? What’s another measly billion?
Why bother with the currency swap overlay? If the regulation really doesn’t cover derivatives, just borrow directly through a swap.
I contend that sovereign debt are often disguised Ponzi schemes.
We just bailed out the banks and put all the debt on the sovereigns who were already straining under massive debt. Then the sovereign debt (public debt) is being sold back to the banks which sometimes cover it with CDS.
Definitely “market structures helped overcome information asymmetries and sustained the development of sovereign debt†, which is being sold to banks and used by them to create liquidity. What a Ponzi scheme and market for lemons.
http://mgiannini.blogspot.com/2010/02/sovereign-debts-markets-for-lemons-and.html
This applies when the money borrowed is really huge but it does not mean automatically that you as creditor become the owner of the property if the debtor does not pay- you still have to foreclose the mortgage or sue the debtor for the loan.
I am reminded of the old joke, “How many legs does a dog have, if you call a tail a leg?” The answer is four, because calling it a leg doesn’t make it a leg. In this case, calling a debt something else means that it doesn’t have to show up on the books as debt; but does that mean it isn’t still debt?
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