Greek Bondholders "Fooled" or Goldman Sachs Committing Fraud?
Bloomberg recently published a story entitled, “Goldman Sachs, Greece Didn’t Disclose Swap, Investors ‘Fooled’.” However, a suspicious revision of the title to “Goldman Sachs, Greece Didn’t Disclose Swap Contract,” seems likely to be the result of criticism from Yves Smith over at Naked Capitalism. Today, she questions why Bloomberg prefers to only discuss the Goldman Sachs-Greece cross currency swaps subterfuge as a sort of foolishness, rather than taking a much more serious tone.
Smith takes Bloomberg to task for using “fooled” when “more obvious F-words, like ‘Fraud’ (as in defrauded) or ‘fleeced'” should have been considered. Then, she digs into her banking experience to relate how to her it seems nearly impossible that Goldman wouldn’t know the nature and extent of the Greek swaps contracts when the bond offering was issued.
From Naked Capitalism:
“Goldman has centralized account management. One person, a relationship manager, is ultimately responsible for selling all products to particular corporate clients and government entities. His full time job is client coverage; he then works with product specialists as needed to get deals done (specialists are also assigned to particular accounts, but the relationship manager is always in the mix.
“Hank Paulson was one of these relationship managers, called investment banking services). So Goldman cannot pretend that somehow the team that handled the bond offering didn’t know about the swaps deal. That’s unlikely to begin with, given Goldman’s fetish about communication, but structurally impossible (the new business guy would have known about both sets of deals).
“In addition, Goldman new business officers (the account managers) are required to document every meeting with the client (this is to protect the firm in case someone is hit by a bus or leaves the firm). This was also a long-standing fetish. In the 1980s, I as a junior account member could ask the library for the “credit memos” as these notes were called. On well-established clients, the meeting notes went back to the 1950s.
“So I’m not certain you need a particular memo, even though such documents probably exist. All you need to do is walk through the structure of Goldman relationship management and their usual client communication protocols to establish that it is just not credible that the team working on the bond issues could not have known about the swaps. Then you just need to figure out a legal theory as to why what Goldman did was not kosher (presumably it was an investor fraud, but you’d need the relevant statutes and precedents).”
Basically, to Smith it sounds straightforward to pin Goldman down on what it knew and when it knew it. It’s unfortunate that there’s little of the backbone needed, in the US or abroad, to explore what could essentially be economic foul play.
Read more of Yves Smith’s insider perspective at Naked Capitalism in her post on when fraud should be called fraud.