goldman sachs and greek debt crisis
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TRANSCRIPT
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Greece Debt Crisis
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Part 1: What trouble wasGreece in?
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Eurozone Since 1999
Greece
How can I join it?
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Part 1 Summary
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Jan 1, 2001
reece finally joined the Euro Zone, becoming the 12th country to join the European single currency.G
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EU Standards:
Deficit < 3% GDP
Debt rate < 60%
What about real figures in Greece?
Nov 15, 2004Greece admitted fudging Euro Zone entry
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Greek economy’s remarkable feature
• Borrow to finance public sector and social welfare since 1974
• Debt to GDP has remained above 100% since 1993
Large Deficits
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Goldman Sachs offered to help Greece
• Cosmetic surgery that beautifies Greece’s finance statements
• Secretive deal claimed to be “low-risky”
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OUT OF COUNTROL
• Financial crisis hit Greek economy hard
• Misreporting is revealed to the public
• Credit ranking downgrading to “junk” level
GREECE IS IN BIG TROUBLE!
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Feb 11, 2010
WHAT REALLY HAPPENED?
Goldman Sachs faced federal inquiry over Greek Crisis
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Part 2: the currency swap
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The Deal
The Greek Government
Issues 10 billion
dollars of bondsSwap into 8.4 billion
Euros of bonds
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2011 Currency Swap
$1 more
billion
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NOT in the balance sheet
NOT required to report to EU
Benefits of the transaction
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Part 2 Summary
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$10bn
Bonds
€ 7.4bn
€8.4bn
Market
$10bnGoldman
Sachs
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Lending Transaction
Currency Transaction
Need to Report
No one Cares
Currency Swap
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Credit Default Swap: CDS
Goldman Sachs
Part 3: CDS
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Loan
Premium
The loan if default
Risk
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NOT transparent1
NOT traded on any exchange2
NOT subject to securitiy laws3
CDS: no regulation
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Greek Government Defaults
A large compensation
Consequence
Greek Government does not default
Appreciation of CDS
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Part 3 Summary
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Competitors
CDS
German bank
sell
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When Greece is said to “collapse”
Owner of CDSWINNER!!!
Seller of CDS LOSER…
German bank