Economic Velociraptors Pounce on Greece, Each Other

With the same sense of destructive impunity shown against AIG the height of the US crisis, financial services firm may now be profiteering from the Greek debt turmoil that currently has the eurozone in a bind. Andrew Cockburn takes a look at how some of the usual suspects may be encircling the easiest prey around, a limping Greece:

“…Wall Street gamblers – banks, hedge funds and other players. Scenting blood in the water, they have been busily placing enormous bets on whether the Greeks would go belly up or be helped out by the Germans. They do this through the medium of ‘credit default swaps’, a form of insurance against default by Greek or any other bonds. Typically, this kind of so-called insurance protection will be offered by a pension fund or some similar institution looking to earn a nice income from premium payments.

“The buy[er]s of the protection will be hedge funds looking to make fast money if the insured bonds lose value and the seller has to pay out. Sitting between them is Goldman, JP Morgan, Bank of America or some other big bank who broker the trade between buyers and sellers. Since this market lacks any transparency – the banks have effortlessly crushed congressional initiatives for reform in this area — these spreads and consequent profits are huge.

“Once everyone has made their CDS bets, the buyers will start beating down the value of the insured bonds – in this case the Greeks. The air has been thick with reports of imminent Greek default, the Greeks’ financial irresponsibility, etc.”

Cockburn later adds that the “economic velociraptors” fight over the savory meat, describing ferocious greed as deciding which firms survice and which get the spoils:

“…a former U.S. Treasury official told me that the story, ‘more smoke than fire,’ [of Goldman Sachs and Greek cross currency swaps] had been leaked by a Goldman competitor, ‘Lazard, JP Morgan, Deutsche — take your pick,’ adding that ‘the velociraptors are ripping chunks of flesh out of each other in a fight to the death.’”

It’s interesting to consider whether and how this behavior is taking place. Certainly, if it’s true in Greece then the technique is likely also in use elsewhere in the euro area. Spain has, at the least, complained of overly-harsh treatment from the Anglo-Saxon establishment. Read the complete article at Counterpunch, in its coverage of economic velociraptors in Greece.