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Banks Bet Greece Defaults on Debt They Helped Hide
Key Excerpts from Article on Website of New York Times
Posted: March 3rd, 2010
http://www.nytimes.com/2010/02/25/business/global/25swaps.ht...
Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin. Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers. These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit. Its like buying fire insurance on your neighbors house you create an incentive to burn down the house, said Philip Gisdakis, head of credit strategy at UniCredit in Munich. As Greeces financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the countrys problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.
Note: For lots more from reliable sources on the realities of the global financial crisis, click here.
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