goldman sachs and greek debt crisis

Greece Debt Crisis

Part 1: What trouble wasGreece in?

Eurozone Since 1999

Greece

How can I join it?

Part 1 Summary

Jan 1, 2001

reece finally joined the Euro Zone, becoming the 12th country to join the European single currency.G

EU Standards:

Deficit < 3% GDP

Debt rate < 60%

What about real figures in Greece?

Nov 15, 2004Greece admitted fudging Euro Zone entry

Greek economy’s remarkable feature

• Borrow to finance public sector and social welfare since 1974

• Debt to GDP has remained above 100% since 1993

Large Deficits

Goldman Sachs offered to help Greece

• Cosmetic surgery that beautifies Greece’s finance statements

• Secretive deal claimed to be “low-risky”

OUT OF COUNTROL

• Financial crisis hit Greek economy hard

• Misreporting is revealed to the public

• Credit ranking downgrading to “junk” level

GREECE IS IN BIG TROUBLE!

Feb 11, 2010

WHAT REALLY HAPPENED?

Goldman Sachs faced federal inquiry over Greek Crisis

Part 2: the currency swap

The Deal

The Greek Government

Issues 10 billion

dollars of bondsSwap into 8.4 billion

Euros of bonds

2011 Currency Swap

$1 more

billion

NOT in the balance sheet

NOT required to report to EU

Benefits of the transaction

Part 2 Summary

$10bn

Bonds

€ 7.4bn

€8.4bn

Market

$10bnGoldman

Sachs

Lending Transaction

Currency Transaction

Need to Report

No one Cares

Currency Swap

Credit Default Swap: CDS

Goldman Sachs

Part 3: CDS

Loan

Premium

The loan if default

Risk

NOT transparent1

NOT traded on any exchange2

NOT subject to securitiy laws3

CDS: no regulation

Greek Government Defaults

A large compensation

Consequence

Greek Government does not default

Appreciation of CDS

Part 3 Summary

Competitors

CDS

German bank

sell

When Greece is said to “collapse”

Owner of CDSWINNER!!!

Seller of CDS LOSER…

German bank