I was going to post something a couple of days ago on Greece’s derivatives deal, but knew I was missing a key piece.
It became prominent yesterday, and Felix’s summary today gets it spot on:
So while it’s entirely fair to blame Greece for trying to hide its debt, and to blame Eurostat for letting it do so, I think that blaming Goldman is harder. It was surely not the only bank involved in these transactions, and the swaps were simple enough to be shopped around a few different banks to see which one could provide the best deal. Structuring swaps transactions is one of those things which investment banks do. If countries like Greece buy swaps in order to hide their true fiscal status, then that’s the country’s fault, not the banks’. No self-respecting bank would decline such a transaction because they felt it was unfair to Eurostat.
Yes, I’m sure that Goldman put a team of people onto the Eurostat rules and made that team available to the Greeks. But let’s not blame the advisers here, for structuring something entirely legal and which the Greeks and Italians clearly wanted to be able to do all along. This is a failure of European transparency and coordination; Goldman is a scapegoat. [emphases mine]
In the “good old days,” some corporate treasurers would use swaps because they were an off-balance sheet way to bet on the movement of Treasuries. But the good ones were using them for asset-liability management: reducing their cost of funds and/or the risks associated with that funding.
Greece is Asset-Liability Management Writ Large—and they made certain that the Eurostat agreements specifically permitted them to do it. Only an economist would call the result an unintended consequence; the finance world will be surprised if they were the only ones.