Exporting Crisis: Goldman Sachs Helps the Greek Government with its Debt

It’s not enough that American investment banks created a financial crisis at home in the United States. They also helped European governments deepen their crisis. Michael Lewis, author of The Big Short and Moneyball, appeared today in an interview on Fresh Air with Terry Gross, to promote his new book, Boomerang: Travels in the New Third World.

Lewis describes how Goldman Sachs helped the Greek government disguise its debt in order to gain entrance into the European Union:

Terry Gross: You said that when Greece was trying to enter the European Union and change its currency to the Euro—that Goldman Sachs helped Greece hide its debt, because you’re only allowed to be 3% of GDP in debt to join the European Union. Do I have that right?

Michael Lewis: That’s correct.

Terry Gross: You described what Goldman Sachs did as not illegal but definitely repellant (laughs). What did they do?

Michael Lewis: They did trades with the government of Greece, currency trades, where they were off-market. It enabled the Greek government to book up-front a big profit, but down the road would have to repay Goldman Sachs quite a bit… Effectively, what they did was they lent the government money without saying that’s what they were doing. If you did this in the corporate world, a bunch of people would be put in jail. They helped the Greek government rig its books, so that they looked acceptable to the European Union so they would be admitted to the Euro.

This was not a kind of one-off situation. You look at the financial crisis in Europe, and the fingerprints of American investment bankers are everywhere. The financial collapse encourages the worst sort of behavior. Just at the same time they’re encouraging the making of lots of bad loans in the United States, they’re encouraging the same sort of behavior at the government level in Europe. And the basic problem was that, historically, the role of the financier…was to make sure risk is properly evaluated. That role got perverted in recent times, and instead the financier helped disguise risk. What Goldman did with Greece was essentially to help disguise the risk of Greek government finances.

Of course, this is not just Greece’s problem. It’s Europe’s. And it’s our problem too, because the deeper into crisis that Europe falls, the harder it is for us to recover from the Great Recession.

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