More on the Goldman/Greece connection

The Automatic Earth lays out all the articles surrounding the Goldman/Greece scandal here.

Will Europe throw out Goldman Sachs?

Ilargi: Talking to friends over the weekend about the revelations of Goldman Sachs involvement in Greek "fantasy accounting", I said the EU should throw Goldman out and refuse to do any further business with the bank, but that I didn't think they would given Goldman's power in the financial markets. Late last night, former IMF man Simon Johnson wrote that he thinks the EU will indeed ban Goldman. Well, it would certainly would be a good step. Don't kick Greece out of the EU, but Goldman Sachs.

Even with the little information we have so far (Johnson suggests a long list of questions to gather more evidence), it's obvious that there should be enough reason to take measures. For instance, Goldman made some $300 million over a short period of time setting up swaps constructions intended to fool Europe -and investors- about Greece's real financial situation, and it continued such efforts as late in the game as three months ago. It's all certainly immoral, if not downright illegal. Buyers of Greek sovereign debt, just to name a party, certainly have the beginnings of a case against Goldman.

The moral hazard flipside, for lack of a better term, from the European point of view is that the European Central Bank, as well as some governmental offices in Brussels and Luxembourg, have at the very least been asleep while these shenanigans were ongoing, and who knows even actively participating. Moreover, it’s very possible that other European countries were (or even still are) setting up similar deals, and that other banks besides Goldman were assisting them. The New York Times mentions Italy and JPMorgan. A truly serious investigation should therefore be expected to cause quite a few political heads to roll. In other words, there'll be plenty of incentive for those in power to derail any truth-finding process.

Let’s see if Europe has more guts in tearing out its rotting parts than the US has shown in for instance the Goldman-AIG case, where nobody involved, from Bernanke to Paulson to Geithner, seems to be able to remember anything they did mere months ago. I'm not holding my breath, but Simon Johnson's letter has certainly added quite a bit of pressure. Still, we need to realize that both countries and financial institutions have legal departments that are experts in finding reasons not to open their books. So the first thing that needs to happen is for the Greek government to start throwing Greek bodies in jail. Then again, what if the current prime minister is himself involved?

This could be a good moment for the people of Europe to show how forceful their protests can be. They might be needed if they wish to know what happened. What we at least do know so far is that Greek politicians have sold out their voters’ futures for personal short term gains, squandering airport fees and lottery proceeds, among others. There may be much more where that came from.

It could get interesting.