Recent reports that financial legerdemain engineered by Goldman Sachs helped destabilize the Greek economy ought to make Californians nervous. It’s time to ask if Goldman could do to us what it appears to have done to the Greeks and, indirectly, to the rest of Europe.
In February, major news organizations reported that the Federal Reserve Board is investigating the role that Goldman – a major recipient of federal bailout funds during our own financial meltdown – played in the Greek debt crisis. The firm used complex financial instruments called “derivatives” to help the Greek government hide the fact that it was in debt up to its eyeballs and getting in deeper.
That, in turn, allowed Greece’s participation in the Euro, Europe’s common currency, under what may have been false pretenses. “One deal created by Goldman Sachs helped obscure billions in debt from budget overseers in Brussels,” the New York Times reported. The deal, “hidden from public view … helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.”
There are reasons to be nervous about California’s entanglement with Goldman, which has been a major participant in bond sales to finance our state’s ballooning deficit.
For example, the Los Angeles Times reported in November 2008 that Goldman had urged some of its biggest clients to place investment bets against the very California bonds that it had helped sell. Such actions could increase investors’ fears about the state’s credit, officials told the paper, thereby driving up the interest rate the state must pay to sell the bonds, increasing the cost to taxpayers.
Read on.
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