July 2015 archive

How Goldman Sachs Profited from the Greek Debt Crisis

Robert Reich

Friday, July 17, 2015

Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it. And just as with the American subprime crisis, and the current plight of many American cities, Wall Street’s predatory lending played an important although little-recognized role.

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Goldman Sachs came to the rescue, arranging a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books “cross-currency swap”-a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.

As a result, about 2 percent of Greece’s debt magically disappeared from its national accounts. Christoforos Sardelis, then head of Greece’s Public Debt Management Agency, later described the deal to Bloomberg Business as “a very sexy story between two sinners.”

For its services, Goldman received a whopping 600 million euros ($793 million), according to Spyros Papanicolaou, who took over from Sardelis in 2005. That came to about 12 percent of Goldman’s revenue from its giant trading and principal-investments unit in 2001-which posted record sales that year. The unit was run by Blankfein.

Then the deal turned sour. After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the country’s debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion.

In 2005, the deal was restructured and that 5.1 billion euros in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the European Central Bank and a major player in the current Greek drama, was then managing director of Goldman’s international division.

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Greece was in the worst shape, and Goldman was the biggest enabler. Undoubtedly, Greece suffers from years of corruption and tax avoidance by its wealthy. But Goldman wasn’t an innocent bystander: It padded its profits by leveraging Greece to the hilt-along with much of the rest of the global economy.

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Even with the global economy reeling from Wall Street’s excesses, Goldman offered Greece another gimmick. In early November 2009, three months before the country’s debt crisis became global news, a Goldman team proposed a financial instrument that would push the debt from Greece’s healthcare system far into the future. This time, though, Greece didn’t bite.

As we know, Wall Street got bailed out by American taxpayers. And in subsequent years, the banks became profitable again and repaid their bailout loans. Bank shares have gone through the roof. Goldman’s were trading at $53 a share in November 2008; they’re now worth over $200. Executives at Goldman and other Wall Street banks have enjoyed huge pay packages and promotions. Blankfein, now Goldman’s CEO, raked in $24 million last year alone.

Meanwhile, the people of Greece struggle to buy medicine and food.

Goldman’s Blankfein joins the 3-comma club

By Bill McColl, Yahoo

July 17, 2015 10:28 AM

Bloomberg Billionaire’s Index finds Blankfein’s net worth is at $1.1 billion, thanks to a surge in the company’s stock price, which is up about 9% so far this year. Bloomberg notes Blankfein is the largest individual owner of Goldman shares, with a value of half a billion dollars. The rest of his wealth comes from real estate and an investment portfolio boosted by cash bonuses and payouts from the firm’s private-equity funds.

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“Lloyd Blankfein has gotten a lot of criticism in the last couple of years for doing ‘God’s work,’ and Goldman is the ‘vampire squid’ and all that bad stuff,” he notes. “But he’s the son of a postal worker. He did not grow up with a silver spoon in his mouth and he made it to the pinnacle of Wall Street society at Goldman Sachs through will, determination, skill and intelligence. That is a great American story for him as an individual.”

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Monica Mehta, Managing Principal at Seventh Capital, tells Yahoo Finance she finds it interesting the Blankfein news comes as we approach the fifth anniversary of the signing of the Dodd-Frank law, which was enacted after the financial crisis specifically to rein in the big banks.

“Aspects of Dodd-Frank in the name of consumer protection are actually making it difficult for people like small-business owners to get mortgages because it’s become tough for banks to lend off of W-2 income,” she adds. “But at the same time banks keep rolling along producing billionaires.”

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

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July 18 is the 199th day of the year (200th in leap years) in the Gregorian calendar. There are 166 days remaining until the end of the year.

On this day in 1940, Franklin Delano Roosevelt, who first took office in 1933 as America’s 32nd president, is nominated for an unprecedented third term. Roosevelt, a Democrat, would eventually be elected to a record four terms in office, the only U.S. president to serve more than two terms.

Roosevelt was born January 30, 1882, in Hyde Park, New York, and went on to serve as a New York state senator from 1911 to 1913, assistant secretary of the Navy from 1913 to 1920 and governor of New York from 1929 to 1932. In 1932, he defeated incumbent Herbert Hoover to be elected president for the first time. During his first term, Roosevelt enacted his New Deal social programs, which were aimed at lifting America out of the Great Depression. In 1936, he won his second term in office by defeating Kansas governor Alf Landon in a landslide.

Election of 1940

The two-term tradition had been an unwritten rule (until the 22nd Amendment after his presidency) since George Washington declined to run for a third term in 1796, and both Ulysses S. Grant and Theodore Roosevelt were attacked for trying to obtain a third non-consecutive term. FDR systematically undercut prominent Democrats who were angling for the nomination, including two cabinet members, Secretary of State Cordell Hull and James Farley, Roosevelt’s campaign manager in 1932 and 1936, Postmaster General and Democratic Party chairman. Roosevelt moved the convention to Chicago where he had strong support from the city machine (which controlled the auditorium sound system). At the convention the opposition was poorly organized but Farley had packed the galleries. Roosevelt sent a message saying that he would not run, unless he was drafted, and that the delegates were free to vote for anyone. The delegates were stunned; then the loudspeaker screamed “We want Roosevelt… The world wants Roosevelt!” The delegates went wild and he was nominated by 946 to 147 on the first ballot. The tactic employed by Roosevelt was not entirely successful, as his goal had been to be drafted by acclamation. The new vice presidential nominee was Henry A. Wallace, a liberal intellectual who was Secretary of Agriculture.

In his campaign against Republican Wendell Willkie, Roosevelt stressed both his proven leadership experience and his intention to do everything possible to keep the United States out of war. In one of his speeches he declared to potential recruits that “you boys are not going to be sent into any foreign war.” He won the 1940 election with 55% of the popular vote and 38 of the 48 states. A shift to the left within the Administration was shown by the naming of Henry A. Wallace as Vice President in place of the conservative Texan John Nance Garner, who had become a bitter enemy of Roosevelt after 1937.

Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when we’re not too hungover  we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.

Breakfast Tune: Carolina Chocolate Drops “Goin Down The Road” On Canvas Preview – Oct. 24, 2013 Episode

Today in History

The Spanish Civil War begins; Sen. Ted Kennedy’s passenger dies when he drives his car off a bridge on Chappaquiddick Island; South Africa’s Nelson Mandela and musician Ricky Skaggs born.

Breakfast News & Blogs Below

Welcome to the Stars Hollow Gazette‘s Health and Fitness News weekly diary. It will publish on Saturday afternoon and be open for discussion about health related issues including diet, exercise, health and health care issues, as well as, tips on what you can do when there is a medical emergency. Also an opportunity to share and exchange your favorite healthy recipes.

Questions are encouraged and I will answer to the best of my ability. If I can’t, I will try to steer you in the right direction. Naturally, I cannot give individual medical advice for personal health issues. I can give you information about medical conditions and the current treatments available.

You can now find past Health and Fitness News diaries here and on the right hand side of the Front Page.

Ed Note: This is an abbreviated posting since I am once again traveling. The usual Health and Fitness feature will be back in a week or two. Meanwhile you can find the latest health news here and here Enjoy your summer.

Follow us on Twitter @StarsHollowGzt

Cherry season is hitting its stride, and fresh cherries will be available for only a few short months.

C’mon, you know I had to.

Michael Grimm, Former Congressman, Gets 8-Month Sentence

By STEPHANIE CLIFFORD, The New York Times

JULY 17, 2015

Michael G. Grimm, a former New York congressman who resigned from office after pleading guilty to tax fraud, was given an eight-month sentence on Friday.

A federal investigation that initially focused on Mr. Grimm’s campaign fund-raising turned into a 20-count indictment related to his running of a restaurant in Manhattan, Healthalicious. Prosecutors said he underreported wages and revenue to the government and filed false tax documents as a result.

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Prosecutors had requested a sentence of 24 to 30 months, while defense lawyers argued for no prison time. Judge Chen, who said that federal sentencing guidelines called for a term of 18 to 24 months, described the crime as “sustained fraud.”

“That this type of crime is common does not lessen its significance,” the judge said. “Your moral compass, Mr. Grimm, needs some reorientation.”

Mr. Grimm was a former Marine and Federal Bureau of Investigation agent. He was elected in 2010 to represent Staten Island and part of Brooklyn in Congress, and resigned after he pleaded guilty in December to one count of tax fraud, a felony.

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Mr. Grimm had been punished enough, Mr. Rashbaum added, saying that he “suffered this humiliation” publicly: He left Congress and forfeited his pension; his law license has been suspended in New York and Connecticut; and he faces likely disbarment.

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An assistant United States attorney, James D. Gatta, argued that Mr. Grimm had not taken responsibility for his crime. “He wants the court to accept that he is remorseful, but still, even today, he is trying to shift the blame for his conduct to others,” he said.

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“He wraps himself in the oaths that he has sworn when it suits him, and turns his back on those oaths when it suits him,” Mr. Gatta said.

Mr. Grimm is scheduled to surrender Sept. 10 and begin his sentence. Once he serves his term, he must perform 200 hours of community service.

Judge Chen said that Mr. Grimm’s work for the F.B.I., as an agent investigating white-collar crime, meant that “he of all people knew better.”

Such a nice guy–

On January 28, 2014, NY1-TV political reporter Michael Scotto was interviewing Grimm in a balcony hallway of the U.S. Capitol building about the recently concluded 2014 State of the Union Address. He then tried to question Grimm about a campaign finance investigation. Grimm said he would not discuss the investigation. As Scotto started to mention the investigation again, Grimm walked off. Scotto then turned to the camera and implied that Grimm didn’t want to face the issue on camera. Grimm then appeared to threaten Scotto, saying that he would “break [Scotto] in half,” as well as threatening to throw Scotto over the balcony.

Grimm issued a statement defending his behavior, saying that he was annoyed by what he called a “disrespectful cheap shot” from Scotto.[67][68] The next day, Grimm contacted Scotto to offer an apology for his behavior, which Scotto deemed sincere.[69] Grimm also issued a written apology, saying, “I shouldn’t have allowed my emotions to get the better of me and lose my cool.”[70] An unnamed former staffer for Grimm and NY1-TV political director Bob Hardt reported that Grimm had behaved in a similar manner to other reporters on previous occasions.

We were told that Federal Felony Guilty Pleas represented some kind of penalties for JPMorgan and CitiBank engaging in conspiring to illegally manipulate the London Inter Bank Exchange Rate (LIBOR), a benchmark “which underpins over $300 Trillion worth of loans worldwide.” (by comparison Worldwide Annual GDP, every country all put together, is a mere $77 to $106 Trillion).

Well, that was a lie told by the Obama Administration and their Wall St. captive Justice Department.

Obama Administration Finds New Way to Let Criminal Banks Avoid Consequences

David Dayen, The Intercept

Jul. 15 2015, 12:35pm

Three top Democrats are accusing the Department of Housing and Urban Development of quietly removing a key clause in its requirements for taxpayer-guaranteed mortgage insurance in order to spare two banks recently convicted of federal crimes from being frozen out of the lucrative market.

HUD’s action is the latest in a series of steps by federal agencies to eliminate real-world consequences for serial financial felons, even as the Obama administration has touted its efforts to hold banks accountable.

In this sense, the guilty plea has become as meaningless to banks as their other ways of resolving criminal charges: out-of-court settlements, or deferred prosecution agreements.

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On May 20 of this year, JPMorgan Chase and Citigroup both entered a guilty plea on one felony count of conspiring to rig foreign currency exchange trades, the largest market on the globe.

Five days earlier, on May 15, HUD slipped a notice into the Federal Register, seeking to alter its standard loan-level certification form, known as HUD-92900-A. This form must be filled out for lenders to receive FHA insurance, which reimburses them if the homeowner falls into foreclosure.

On the current HUD-92900-A form, lenders must certify that their firm and its principals “have not, within a three-year period … been convicted of or had a civil judgment rendered against them” for a variety of crimes, including “commission of fraud … violation of Federal or State antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements or receiving stolen property.”

JPMorgan and Citi’s guilty plea would fall under the antitrust statute, and according to Brown, Warren and Waters’ reading of the certification, that would make them ineligible to obtain FHA insurance on their loans.

On the updated form, this language has been excised. The notice in the Federal Register did not even mention the removal, making it impossible to discover without comparing the old form and the proposed form side by side.

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While many industry observers believe banks should not be punished in one area of their business for the sins in another area, the threat of such consequences could act as an effective deterrent for the parent company to follow the law across its business lines. But if these consequences are habitually waived, the deterrent value becomes irrelevant. The industry has also warned of reduced access to credit if large FHA lenders like JPMorgan Chase and Citi were barred, a perennial objection any time profits are threatened.

“HUD may have good reasons for proposing these changes at this time,” write Brown, Warren and Waters, but “but its Federal Register notice fails to even describe the changes to the certifications on illegal conduct – let alone offer a rationale for them.”

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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Paul Krugman: Liberals and Wages

Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton’s core message was that the federal government can and should use its influence to push for higher wages.

Conservatives, however – at least those who could stop chanting “Benghazi! Benghazi! Benghazi!” long enough to pay attention – seemed bemused. They believe that Ronald Reagan proved that government is the problem, not the solution. So wasn’t Mrs. Clinton just reviving defunct “paleoliberalism”? And don’t we know that government intervention in markets produces terrible side effects?

No, she wasn’t, and no, we don’t. In fact, Mrs. Clinton’s speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.

David Cay Johnston: The economic upshot of the Iran deal

War is bad for business. Avoiding it will be a boon for the US, Europe and the Middle East

For all the hot air in Washington this week from Republicans denouncing the historic deal the United States and five world powers reached with Iran, keep in mind that gasoline may soon fall back to $2 a gallon.

That is just one of many economic benefits to America, Europe and the Middle East we can anticipate because the smart use of economic sanctions and diplomacy produced a peaceful solution to the confrontation over Iran’s nuclear program. Since 2006 the U.N. has granted authority to its members to thwart Tehran’s development of nuclear bombs and the missiles to deliver them.

Throughout we have had political donors such as American casino mogul and pro-Israel hawk Sheldon Adelson, foreign leaders such as Israeli Prime Minister Benjamin Netanyahu and a host of Republicans on Capitol Hill openly state or suggest that the best way to deal with Tehran was war.

European Neoliberals Crushed the Leftist Party in Greece

By Ed Walker (masaccio), emptywheel

Published July 16, 2015

Wolfgang Schauble, the German Finance Minister, took the position that the previous government had agreed to the austerity program, and the Greeks were stuck with it. When Varoufakis asked if debtor countries should just dispense with elections, Schauble was silent, which Varoufakis interprets to mean it would be great if that could be done. Then came the referendum, a smashing win for rejecting the austerity demands of the Troika. Varoufakis says he had a plan ready to get ready to exit the Euro, but Tsipras rejected it, and moved to capitulation.

So from this we can conclude that what we thought about Europe is true: it is a purely neoliberal state, one in which creditors cannot suffer losses. Either the debtor pays or the taxpayers pay, but the creditors do not lose money. And, of course, by taxpayers, I mean the working class and any remaining middle class. The elites use their control over governments to make sure they don’t pay.

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The interview with Kouvelakis makes it clear that this was purposeful. He tells us how it looked from the standpoint of the Left Platform, the leftist element of Syriza. He thinks that in June it became clear that the Troika was not negotiating in good faith, and were out to humiliate the people of Greece. Tsipras used the referendum to get himself out of the negotiating trap. He expected the referendum to win, not, as it did, to lose. The decisive factor was the decision by the ECB to force closure of Greek banks, which panicked people.

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In this Kouvelakis agrees with Varoufakis. He also agrees that their approach was logical and lucid, to use his words. The weakness was their belief in Left Europeanism. Tsipras and Varoufakis both thought that this was a negotiation between partners in the European project.

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Kouvelakis tells us that this was a class vote. The working class supported the no vote, and the wealthy supported the yes side. The age group 18-24 voted no overwhelmingly. These groups see the EU as hostile, and they are anti-European. They were betrayed by the people they elected.

Kouvelakis says that the yes supporters, the old guard in Greek politics, collapsed in the wake of the loss. But then Tsipras revived them with his call for a council of political leaders. These people decided to treat the referendum as a vote to continue negotiations, even for capitulation. Kouvelakis feels betrayed by this reversal. After a discussion of internal Greek procedures, Kouvelakis says that the Left Platform will leave Syriza, and that the rightist wing and the rest of the group will more or less unite with those rejected parties to form a party of national unity.

That’s so depressing it’s hard to write. One of the EU demands was replacement of the elected government of Greece. It is a direct rejection of democracy. The EU refuses to work with anyone outside the neoliberal consensus, meaning leftist parties. Syriza was never a revolutionary leftist party, more of a highly reform oriented leftist group, and that’s how Kouvelakis sees the Left Platform. So, by removing the Left Platform, Syriza is now nothing more than the Third Way Democrats: economic destruction of human beings with a nice smile. Large groups of Greeks were willing to do battle with the neoliberals, but they were betrayed, and their misery will go on indefinitely. The destruction of human lives is just the way things are in neoliberal lands.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge

July 17 is the 198th day of the year (199th in leap years) in the Gregorian calendar. There are 167 days remaining until the end of the year.

On this day in 1998, a diplomatic conference adopts the Rome Statute of the International Criminal Court, establishing a permanent international court to prosecute individuals for genocide, crime against humanity, war crimes, and the crime of aggression.

The Rome Statute of the International Criminal Court (often referred to as the International Criminal Court Statute or the Rome Statute) is the treaty that established the International Criminal Court (ICC). It was adopted at a diplomatic conference in Rome on 17 July 1998 and it entered into force on 1 July 2002. As of March 2011, 114 states are party to the statute. Grenada will become the 115th state party on 1 August 2011. A further 34 states have signed but not ratified the treaty. Among other things, the statute establishes the court’s functions, jurisdiction and structure.

Under the Rome Statue, the ICC can only investigate and prosecute in situations where states are unable or unwilling to do so themselves. Thus, the majority of international crimes continue to go unpunished unless and until domestic systems can properly deal with them. Therefore, permanent solutions to impunity must be found at the domestic level.

History

Following years of negotiations aimed at establishing a permanent international tribunal to prosecute individuals accused of genocide and other serious international crimes, such as crimes against humanity, war crimes and the recently defined crimes of aggression, the United Nations General Assembly convened a five-week diplomatic conference in Rome in June 1998 “to finalize and adopt a convention on the establishment of an international criminal court”. On 17 July 1998, the Rome Statute was adopted by a vote of 120 to 7, with 21 countries abstaining.[5] The seven countries that voted against the treaty were Iraq, Israel, Libya, the People’s Republic of China, Qatar, the United States, and Yemen.

On 11 April 2002, ten countries ratified the statute at the same time at a special ceremony held at the United Nations headquarters in New York City, bringing the total number of signatories to sixty, which was the minimum number required to bring the statue into force, as defined in Article 126. The treaty entered into force on 1 July 2002; the ICC can only prosecute crimes committed on or after that date. The statute was modified in 2010 after the Review Conference in Kampala, Uganda, but the amendments to the statute that were adopted at that time are not effective yet.

The Rome Statute is the result of multiple attempts for the creation of a supranational and international tribunal. At the end of 19th century, the international community took the first steps towards the institution of permanent courts with supranational jurisdiction. With the Hague International Peace Conferences, representatives of the most powerful nations made an attempt to harmonize laws of war and to limit the use of technologically advanced weapons. After World War I and even more after the heinous crimes committed during World War II, it became a priority to prosecute individuals responsible for crimes so serious that needed to be called “against humanity”. In order to re-affirm basic principles of democratic civilisation, the alleged criminals were not executed in public squares or sent to torture camps, but instead treated as criminals: with a regular trial, the right to defense and the presumption of innocence. The Nuremberg trials marked a crucial moment in legal history, and after that, some treaties that led to the drafting of the Rome Statute were signed.

UN General Assembly Resolution n. 260 9 December 1948, the Convention on the Prevention and Punishment of the Crime of Genocide, was the first step towards the establishment of an international permanent criminal tribunal with jurisdiction on crimes yet to be defined in international treaties. In the resolution there was a hope for an effort from the Legal UN commission in that direction. The General Assembly, after the considerations expressed from the commission, established a committee to draft a statute and study the related legal issues. In 1951 a first draft was presented; a second followed in 195] but there were a number of delays, officially due to the difficulties in the definition of the crime of aggression, that were only solved with diplomatic assemblies in the years following the statute’s coming into force. The geopolitical tensions of the Cold War also contributed to the delays.

Trinidad and Tobago asked the General Assembly in December 1989 to re-open the talks for the establishment of an international criminal court and in 1994 presented a draft Statute. The General Assembly created an ad hoc committee for the International Criminal Court and, after hearing the conclusions, a Preparatory Committee that worked for two years (1996-1998) on the draft. Meanwhile, the United Nations created the ad hoc tribunals for the former Yugoslavia (ICTY) and for Rwanda (ICTR) using statutes-and amendments due to issues raised during pre-trial or trial stages of the proceedings-that are quite similar to the Rome Statute.

During its 52nd session the UN General Assembly decided to convene a diplomatic conference for the establishment of the International Criminal Court, held in Rome 15 June-17 July 1998 to define the treaty, entered into force on 1 July 2002.

Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when we’re not too hungover  we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.

This Day in History

TWA Flight 800 explodes; Russia’s royal family executed; Disneyland opens; Nicaragua’s Somoza goes into exile; Apollo and Soyuz link up in space; Baseball’s Ty Cobb and jazz great John Coltrane die.

Breakfast Tunes

Something to Think about over Coffee Prozac

Twenty years from now, you will be more disappointed by the things you didn’t do than those you did. So throw off the bowlines. Sail away from safe harbor. Catch the wind in your sails. Explore. Dream. Discover.

Mark Twain