Senior Goldman Adviser Criticizes Greece – Without Disclosing His Goldman Affiliation

 By Simon Johnson

Otmar Issing, a former senior European Central Bank official, came out strongly today against any kind of rescue package for Greece (FT op ed; Bloomberg report).

He hits hard to the core of the issue:

“Financial assistance for countries that violated the terms of their participation in EMU [European Monetary Union, i.e., the eurozone] would be a major blow for the credibility of the whole framework.”

Unfortunately, Mr. Issing’s article (and the subsequent coverage) neglected to mention that he is an adviser to Goldman Sachs (see also the FT archives).  This is a major issue for three reasons.

  1. Goldman, we know now, was intimately involved in the deal(s) that allowed Greece to violate the terms of its participation in EMU.  It is possible – but not yet confirmed – that the entire nefarious swap arrangement in 2001 was Goldman’s idea.  This would be beyond being the equivalent of helping people dodge their taxes; this is actively encouraging your clients to undermine the basis of civilized society.   Following Mr. Issing’s logic, which seems sound, Goldman played a major role in undermining the eurozone.
  2. Goldman is currently presumed to have a stake in Greek government securities, given its recent and ongoing relationships with that country.  It looks very much like Mr. Issing may be talking Goldman’s book, whether he realizes it or not.
  3. Presumably Mr. Issing will be able to reassure someone that there was nothing improper about his article today.  But who exactly has jurisdictions over such issues – for a US bank holding company operating in another country?  Is this a matter for the Securities and Exchange Commission in Washington or the European Commission in Brussels or the German government or someone else?  Where is the Federal Reserve – Goldman’s primary supervisor – on such issues, which pertain to global financial instability?  Welcome to the scary and essentially unsupervised world of international banking.

Mr. Issing and Goldman Sachs will no doubt soon issue a detailed explanation regarding his exact involvement in and knowledge of all transactions and positions related to Greece.

Hopefully, the Financial Times, Bloomberg, and other news organizations will amend their coverage to reflect Mr. Issing’s affiliations – and also ask more pointed questions about potential conflicts of interest in the future.

The scope, reach, and influence of Goldman Sachs today are unprecedented.  Thinking in terms of the broader global economy – and our own struggling recovery – is this a good thing? 

At the very least, we need a great deal more transparency and disclosure regarding everything said or done by anyone linked to Goldman in any fashion.

71 responses to “Senior Goldman Adviser Criticizes Greece – Without Disclosing His Goldman Affiliation

  1. Goldman is currently presumed to have a stake in Greek government securities, given its recent and ongoing relationships with that country.

    Simon, Simon, Simon. Goldman is not positioned to profit massively from volatility in Greek bonds; they are merely “hedged in their exposure”. I know because Lloyd Blankfein said so in Congressional testimony.

    OK, so maybe lynching would be going to far. For some of them. How about tar and feathering?

  2. I have written the FT. on multiple occasions regarding conflcts and associations not revealed in the editorial section

  3. So do I have this right:

    Mr Issing, a senior Goldman Sachs advisor, comes out thumping his chest about how Greek widows and children must starve because the Greek government “violated the terms of their participation in EMU”, all the while knowing the very company he now “works” for, Goldman Sachs, was potentially intimately involved with said “violations”.

    Are these people really ALL sociopaths?

  4. Now. Now. I’m sure that the Greek government were “sophisticated investors” who were well aware of the risks in the products GS was peddling.

    It’s pretty shocking – GS has figured out how to make a fortune bringing down entire sovereign nations. Who needs Blackwater when we’ve got Goldsack!
    These guys are the weapon that evil geniuses have been trying to invent for decades.

  5. Congressional testimonies haven’t stopped people from lying, unfortunately…. ‘Goldman Goes Rogue’–a great play on words, Simon, dearest… but I don’t think Sara Palin knew what she was calling herself when she entitled her recent book “Going Rogue” , given the primary definition of rogue as: “ a dishonest, knavish person, scoundrel” but I think that is what was suggested of Goldman Sachs, though ;-).

    The Financial Times is good if you can afford to subscribe to their online version, which at the moment, I am not, thus waiting another 30 days for another free copy; although the link to their archive (which you provided) seems to be accessible (without charge ;-)

  6. Two things:

    1: The EU must bailout the Greek economy and ensure stability.

    2: The EU then must insulate itself from US supercapitalism, and return to its stable social democratic model.

  7. Yes, right! Mr. Johnson, please show these hypocrites, how ludicrous their bigotry is.

  8. Former ECB chief economist Issing accepts advisory post at Goldman Sachs

    October 2006 – excerpt

    FRANKFURT (AFX) – “Otmar Issing, the former chief economist of the European Central Bank, told a newspaper that he had accepted an offer from Goldman Sachs to act as an international advisor to the investment bank. Issing, 70, insisted however that he would not be involved in the day-to-day running of Goldman Sachs, so there was no way he could be seen as coming into a conflict of interests.

    His job at Goldman Sachs would be a “loose advisory position”, which would in no way relate to the investment bank’s operations, Issing told the business daily Handelsblatt.

    Issing received the green light from the ECB’s decision-making governing council before accepting the position, the ECB confirmed.”

    http://tinyurl.com/y8heuyu

    Otmar Issing wrote April 2008:

    “Europe’s monetary union, which launched the euro almost a decade ago, remains an “experiment” with the outcome “likely to remain uncertain for a considerable time to come” writes Otmar Issing, who served as the European Central Bank’s chief economist for its first eight years

    http://www.nejtillemu.com/otmarissing2008.htm

    Otmar Issing wrote: October 2008

    “Euro area is lucky to have the euro, according to him, otherwise things would probably been even worse.

    http://www.ecbwatch.com/

  9. If Pres. Obama, Larry Summers, Tim Geitner, and Paul Volker were waiting for the right moment to intervene, this is it.

    If no effective government response is mounted, we’ll know just how deep Goldman — and Wall Street — ownership goes in America Inc.

  10. Octavio Richetta

    Professor Johnson: U-R-Da’ Man!

    Make no mistake, cockroach theory assures the sovereign financial crisis looming will bring out more roaches on both sides of the equation; i.e., GS and Greece will not be the lonely roaches in this crisis.

    Anyone dares to speculate how the sovereign debt mess just starting compares to the crisis initially known as the US subprime crisis, which turned out to involve a lot more than just US subprime mortgagees/borrowers?

    Octavio Richetta

    PS: it looks like I’ve found a new home:-)

  11. If this is true, then that means our sanctions policy is completely misguided. Instead of containment and isolation of rogue states, we should offer them 100% open access to international finance, and then pay Goldman Sachs to lure them into a half-decade or so of paper-profits prosperity, then *WHAM* totally bring down their civilization when they inevitably default.

    Uh Oh – GS is now going to open a National Security “special services” office based on this idea.

  12. At the very least, we need a great deal more transparency and disclosure regarding everything said or done by anyone linked to Goldman in any fashion.

    For anyone who has seen the movie Gomorrah this is more than a little ironic. One of the films dapper mobsters says almost exactly the same thing in regards to a big deal wherein they plot to dump toxic industrial waste near populous areas.

  13. Are these people really ALL sociopaths?

    Simple answers to simple questions:

    Yes.

  14. For ‘doing God’s work’ ?

    http://tinyurl.com/doing-Gods-work

  15. 15 February 2010 – Guardian.co.uk – excerpt

    “Papaconstantinou (Greek finance minister) “partly” blamed the hedge funds for betting against the euro and Greece, aimed at engineering a “self-fulfilling prophecy”. He voiced support for tighter regulation of hedge funds trading in credit default swaps on Greek debt. Part of Greece’s problem, he said, was that “pure speculative gains are pushing us towards the edge”.

    The minister added that the role played by investment banks such as Goldman Sachs and JP Morgan in striking derivatives deals with the Greek government in order to conceal the true state of the public accounts was not unique to Athens. “Greece was not the only country using them [derivatives],” he said.

    http://tinyurl.com/yckghr8

  16. Regarding the “we now know” point, see todays FT Alphaville posts about who knew what when. The gaming has been an open secret for at least a decade. The absence of crisis, till now, has served the govts and arrangers well. Time has come to ‘out’ the arrangers, and the fees they earned from off market swaps in MSM.

    http://ftalphaville.ft.com/blog/2010/02/15/149646/eu-leaders-only-8-years-behind-the-curve-on-currency-swaps/

    and

    http://ftalphaville.ft.com/blog/2010/02/15/149646/eu-leaders-only-8-years-behind-the-curve-on-currency-swaps/

  17. Are you sure that was the Greek Finance Minister? It sounds an awful lot like Dick Fuld circa August 2008.

  18. There are some people who say that MTV did more to topple the Soviet Union than any US politician ever did… “Western culture” used to be considered the ultimate solvent for any totalitarian state. Seems “Western finance” might be the new thing…

  19. Nicholas Mycroft

    N.B. GS almost certainly holds Greek CDS which would pay out in the event of a Greek default and possibly a bail-out. They could well get paid on the swaps and the CDS hedge as well.

    http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-greece

  20. It may well be that the Euro currency union has been an impediment to assisting Greece if their past currency was in operation…it will be apparent for Spain et al as things unwind with bailouts…GS are criminals and the US government is complicit.

  21. You’re on the right track, Simon. Don’t stop now. Keep on keeping on.

    Gs greed is killing us. They’re robbing us blind.

  22. Nemo, Nemo, Nemo. If you have some proof, why don’t you put it out here where we can all see it.

  23. I seems that truly doing “God’s work” means throwing out the money changers every now and then.

  24. I’m with Pat. Let’s see how this turns out. Then maybe we will see whose ox is in the ditch.

  25. I suppose there is a need for a Global Financial Crimes Treaty, under which Goldman can be dissolved and their affairs unwound.

  26. They are certainly well hedged, and how much do you want to bet the US taxpayer would be paying-off that hedge if Greece defaults?

    One has to wonder what the actual relationship is between GS, the CIA, the Treserve (new term for the Fed and Treasury) and the Executive branch…are they all one and the same? Inquiring minds want to know.

  27. Maybe GS can assist Greece in getting out of the EMU, and establishing/reestablishing their own Central Banking System. That way they can get out of this mess the American way…just “make” more money and buy your own debt. Kick the can.

  28. Valerie Gagnon

    Laugh….

  29. Valerie Gagnon

    Once again laughing aloud…..
    Thank you Beth

  30. Tip: to access FT articles for free, Google the article headline. Somehow FT gets paid for the google hit.

  31. Valerie Gagnon

    He should read today’s Krugman’s opinion on why none of the Euro zone’s weaker economies should have been accepted in the first place to participate in the euro: not enough flexibility when it comes to monetary policy!!

  32. The tactic (based on GS parasitism of AIG) appears to involve the victim posting collateral based on the victim’s own credit rating, so all that needs to happen is one downgrade for GS to own the entire asset based on collateral requirement-downgrade feedback loop. If the tactic is the same it just takes one downgrade and GS owns the victim.

  33. Greece has had it’s own central bank all along. The Bank of Greece is a member of the European System of Central Banks. It prints Euros. The Bank of Greece is analagous to a United States Federal Reserve Bank. The ECB is a coop .

  34. Valerie Gagnon

    Welcome to sanity

  35. Valerie Gagnon

    Thank you!!

  36. This is life in a corporatocracy. It’s multi-national. It crosses borders. How much money was made for GS for putting together deals like this for the likes of Greece?

  37. Simon, This is even worse than you think. The Business Insider (clusterstock) is reporting that Goldman shorted Greek debt immediately after arranging the swaps.

    Issing is DEFINETELY talking Goldman’s book.

    I sincerely hope these guys go down hard.

  38. Dr. Issing actually laid out a perfectly fair analysis of the letter of the law re the Eurozone – re Lisbon and Maasricht. The problem as I pointed out on FT Alphaville is that it takes no account of market realities, let alone any real or imagined conspiracy theories. The real issue is as pointed out ad nauseam is that there never was a balance of paymnents nor fiscal arrangement undelying the €. This was at best irresponsible, at worst it was creating a currency with a false premise about the real monetary and fiscal rules. The € is now an accident waiting to happen. Whilst the Greek Government can be blamed for fiscal irresponsibility, it was always a Euro aim to ensure that cohesion funds brought the poorer members into line by transfers to the Club Med. The latter of the law might have been respected, but the spirit of it could never be as there IS no mechanism for fiscal transfers without much closer political union- rejected by most Euro Governments until the ramming through of the Lisbon Treaty and with bail outs effectively outlawed. The German psoition whilst understandable in national and historical terms actually is very dangerous and likley to create the very conditions that they wish to avoid- a € collapse. This may /may not have been with GS connivance. If so it is the kind of advice that sovereigns should reject out of hand and again is totally irresposible.
    A political fix is a must now and in my view will be on its way, as the alternative, as argued here before is disastrous for Europe. If so Dr. Issing shows the totally inflexible attitude that wilfully misunderstands market sentiment . This is no longer some Anglo Saxon conspiracy, as argued by Spain, but a logical reaction by hedge funds and other agencies to an unsustainable currency position.

  39. When do you plan on disclosing that you were also once an adviser to Goldman, Simon? Because you were. Hypocrisy, thy name is Simon Johnson.

  40. The Business Insider piece also claims GS also bought CDS protection for the same debt which it later sold to the Bank of Greece. Thus, in a default, the Bank of Greece would collect the unpaid debt balance from the seller of protection. Some AIG type will be holding the bag.

    Presumptively, that CDS settlement with Bank of Greece would later allow Bank of Greece to buy up the debt with funds from the seller of CDS protection. This aspect could be accomplished in a number of ways when the coast is clear.

    In short, it would be a windfall if Greece defaulted so as to trigger settlement of the CDS with Bank of Greece.

  41. So I have a question . If GS is positioned to make a bundle on a Greek default, who is it that is positioned to take the loss?

  42. The losses are socialized.

  43. February 16, 2010 -smh.com.au – excerpt

    ATHENS: “Greece’s embattled government can expect added pressure to enforce even tougher austerity measures to combat the country’s debt at a two-day meeting of European Union finance ministers which began yesterday and is likely to focus solely on the crisis.

    In a week when the government faces further strikes from customs officials, tax inspectors and Finance Ministry employees, it will come under additional pressure to slash public sector wages….

    ”The message is clear,” proclaimed the front page of Sunday’s Kathimerini newspaper. ”The time of reckoning for the Greek economy, and by extension Greek society, has arrived.”

    http://tinyurl.com/yao9aon

  44. Tried that… but apparently the articles are considered proprietary after “10 free articles a month”…. they also request that readers do not cut and paste copyrighted contents virally to other sites and blogs or by email (which is totally understandable)…. have a few past articles saved on my desktop for referencing, though.

  45. Greece and Goldman: Sowing the Wind

    2/14/2010 – Crash Course – excerpts

    ” On Saturday night the New York Times posted an interesting piece on Goldman Sachs’ connection to the unfolding Greek tragedy…For those who have missed it, for the past week or two capital markets have been fretting over what they cheekily call “the PIIGS”—Portugal, Italy, Ireland, Greece, and Spain. The operative concern is too much debt.

    The theory is that these smaller countries will require bailouts on the AIG scale, which will pull down the more important (to bankers) countries of Europe, since they all share the same currency.

    “For about the past 20 years, governments large and small have been selling or leasing out public assets—toll roads, transit systems, even sewers—for one-time cash infusions.

    Greece’s crime, apparently, was in trying to bolster public sector wages with its borrowed boodle.

    That’s why, in Wall Street’s terms, Greece is one of the PIIGS.

    http://www.citypaper.com/digest.asp?id=19761

  46. “Michael, we’re bigger than US Steel!” — Hyman Roth

  47. markets.aurelius

    Of course GS was short the debt (outright or via cds). This is classic GS: lever the name up then short the hell out of it via cds (a la AIG). The pure GS element here is they bent a distressed cp over the desk and then just had their way with ‘em. 300 bucks for services rendered. Brilliant.

  48. Goldman disgusts me

  49. Once an advisor? Maybe he saw the error of his ways and decided that morality was more important than a client.

  50. What’s to stop Greece from being removed (or leaving) the EU? It sounds like another possibility to me. I can see Germany kicking them out if it’s possible to remove their responsibility for a bail out.

  51. Who is playing the role of Jesus this time? Who actually has the balls to overturn some tables?

  52. Greed is good. IT’s what makes the world go round. If God didn’t want GS to make/steal all the money in the world, he wouldn’t let them do it.

    Doing God’s work is special.

  53. A senior position at the IMF is better than working for GS?

  54. So wait if I’m reading this right… Goldman destroyed an entire country’s economy on purpose so they could make a bundle on CDS. They PLANNED for them to go down.

  55. I think we can let God determine what God’s work is.

  56. That’s how it appears. I’d take it one more step and speculate that GS not only destroyed a nation’s economy to make a bundle on the CDS plus the fees for setting up the deal, but that they will also end up holding collateral or some other assets post-crash.

    When will a supposedly sovereign nation tell them to **** off?

  57. How is this not considered 1st degree murder in international economic terms? (Here’s where I broadcast my ignorance…) Is there such a term or concept? Would GS be guilty of said concept? Would anybody do a damn thing to enforce it?

  58. I appreciate that you are pointing out the possible conflicts given Goldmans history but when I read Issing’s article I thought it was very logical and presented the proper path for Greece and the EU.If you combine his article with one written on Feb 11 by Michael Massourakis “Privatisations offer Greece the best way to avoid a bail-out”, you then have a very good template for resolution. Even though you are correct in your undercover work you need to be careful not to undermine a well thought out and helpful opinion.

  59. So freaking what ? Just because he’s an advisor to Goldman he can’t give an opinion ? Did he give an opinion speaking on behalf of any institution or just his own?

    Welcome to the world of Simon Johnson: conspiracy theories and implicit allegations of misconduct based merely on the fact that someone is hired by a bank.

    I can’t believe you are taken seriously by anyone Mr Johnson

  60. In Europe generally and Germany more specifically Otmar Issing speaks with a very big voice. He has the respect of a Paul Volker or Arthur Burns in the US.

    There is no way that Germany is going to bail out Greece in any meaningful way with this guy talking like this.

    Enjoy the calm before the storm.

  61. If someone is on an ‘advisory committee’ of some sort, and Goldman may have several such international advisory committees, then the individuals do not ‘work for ‘ Goldman. They maybe asked for advice by partners/executives of the firm, or, they may be asked to make speeches etc. to whatever audience.

    It appears unreasonable to assume – without probable cause – that Mr. Issing was in any way involved in advising Goldman, and or Greece, in cooking their national accounts, and to undermine the basis of civilized society. Unless evidence to the contrary, Goldman and Greece are very much on their own. It may however be the case that many high level insiders of the financial markets, including investment bankers, central bankers and senior governmental officials became more and more aware, since 2003, that something is going wrong – and not just with Greek national accounts.

  62. If the deal was done with imaginary exchange rates, wouldn’t that make the deal illegal, as it would be fraudulent. That would make those responsible (the deal-maker and deal-taker) both criminally liable.

  63. Just as there are market forces, there are forces of Good and Evil. If it does not fall off the front page, or more correctly stated, if it is not ordered off the front page, I think over time people will come to realize that Goldman Sachs is on the side of Evil.

  64. I think we already know the answer and it ain’t pretty.

  65. Can’t we make citizens arrests on these criminals? Just do it please!

  66. I say we feed the whole lot to Al Qaida (sp) and let them take care of them.

  67. Yes. Greece’s contribution…the word Sociopath. to explain the behavior of the people who will bring down Greece, damage Euro and inflame the reputation of respectable investment firms that helped Greece become a fortunate participant of a dynamic group of Countries.

  68. OK, now we want to know who is the Mr. Madoff of Greece’s sovereign debt Ponzi scheme.
    Bankers are still hanging around in “business as usual mode” always saying “oh no, it’s not my fault, because to the best of my knowledge I never know what people under my supervision and control are doing…”

  69. I agree that insiders, bankers, maybe Greece’s industrialists and other bosses. The way they control what it is being told by the media to the Greek people. They are organizing riots to remove Greece from Euro. Assign a value to a new Drachma, and then making a fortune by turning all deposits to their own Drachma. The poor Greek people sheltered by language are going to be paying for the next five hundred years. This is the writing on the wall!

  70. Got to stop them…someone needs to translate to the Greek people. Maybe a patriot…Maybe someone in America, I am afraid that czar Papakonstantinou and PM Papandreou are still cooking!