Sunday, April 1, 2012

The blind spot surrounding the 2005 'major restructuring' of the Goldman / Greek secret loan

The EU Commission was at the forefront of the response to the revelation in 2010 of irregularities in Greece's government statistics and in particular the 2.8bn Euros secret loan it received from Goldman Sachs in 2001 (Bloomberg).

Has it delivered, and has parliamentary oversight been adequate? 

We tried to answer in a December 2011 article by comparing the results of a thorough audit from Eurostat with initiatives from legislative bodies in the EU and the UK and the bank's communication (MarketOracle). In short, there were serious lapses that point to a deception. 

We revisit the issue based on additional material, an April 2010 hearing in the EU parliament (video footage included in this article) and the work of the special committee in charge of studying the causes of the financial crisis, CRIS.

The time is opportune following Nick Dundbar's recent report which reveals important details about the imbalanced relationship between Greece's debt agency and the bank (Bloombeg). That reinforces our case that EU officials have limited their reach to regularizing the accounts, not investigating the actions of the parties involved.

In this article we draw up an inventory of the cases in which a 2005 'significant restructuring' of the transactions has evaded scrutiny. Both from EU officials supposedly in search for the truth (in one case literally) and the media. We take a critical look at the coverage of Nick Dunbar and March Roche because are supposed to know better than any other observer.

Main characters

Alphabetically (surname):

Edward Gerald Corrigan
  • Affiliation: Goldman Sachs/CRMPG
  • Title: Managing Director/Chairman
  • Notable: Said at April 2010 EU parliamentary hearing he knows nothing in reference to 2005.
Mario Draghi
  • Affiliation: Goldman Sachs International (2002 to 2005), ECB (present)
  • Title: Vice-Chairman (2002-2005), President (present)
  • Notable: Said during June 2011 hearing he could not have been implicated because the deal dates back to 2001
Nicholas (Nick) Dunbar
  • Affiliation: Bloomberg
  • Title: Editor
  • Notable: Wrote a news breaking article in 2003 on the issue (
Olli Rehn
  • Affiliation: EU Commission
  • Title: Director General for Economic and Financial Affairs (DG ECFIN) 
  • Notable: In April 2010 declared in the EU parliament that there was no case for judicial action.
Marc Roche
  • Affiliation: Le Monde
  • Title : City correspondent
  • Notable: Author of the book How Goldman Sachs controls the world (Amazon)


This is the timeline of cases when the 2005 'significant restructuring' may have some relevance. Other events that are necessary to provide context are also included.

February 2010

A hearing involving Goldman Sachs is held at the Treasury Select Committee of the UK parliament. It is chaired by MP Michael Fallon. Spokesman for the bank Gerald Corrigan says, among several arguments, that the EU was "too liberal" in allowing a loophole at the time the deal was made in 2001, and that Eurostat was consulted on the accounting treatment. Around that period the bank issues a press release acknowledging the apparent debt reduction resulting from the transaction in 2001. Neither the spokesman nor the press release mentions the 2005 restructuring.

Around the same time, Simon Johnson, formerly Chief Economist of the International Monetary Fund, predicts that
Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether  (BaselineScenario).

April 2010

A hearing called Lessons from Greece is organized by the ECON Committee of the EU Parliament, chaired by Sharon Bowles.

In the first session, Commissioner Olli Rehn responds to the mention of taking legal action against the parties involved in the transactions. He says it is not warranted because, while illegitimate, they were legal when initiated in 2001 according to the member state's law (Greece).

In the second session, whereas Olli Rehn has already left, spokesman Gerald Corrigan is asked by the head of Eurostat, Walter Rademacher, about the 2005 restructuring. He says he knows nothing in reference to that.

May 2010

CRIS delivers its mid term report. It contains an amendment to boycott Goldman Sachs, but no legal opinion to support it. It is revoked under the impulsion of the Chairman, Wolf Klinz.

The same month, Michel Barnier, EU Commissioner for internal market, meets with Lloyd Blankfein, Chairman and CEO of Goldman Sachs (Bloomberg).

November 2010

Eurostat delivers its audit to the EU Commission, exposing the 2005 restructuring. Its purpose is to conceal a re-evaluation of the loan from 2.8bn Euros in 2001 to 5.1bn Euros throughout 2006-2009. Soon after, the bank's position was sold to the National Bank of Greece for that amount.

The audit also shows a pattern of irregularities throughout the decade, including in reference to a 2004 audit. Even after the loophole was closed in 2008, Greece continued to deny the existence of the contentious transactions.

This report says that Eurostat examined most of the evidence on the Greek debt swaps only in September 2010.

May 2011

Jean Claude Trichet derails a legal proceeding by Bloomberg to release secret files about the transactions that are in custody of the ECB, pretexting that it could cause market risk (Bloomberg).

June 2011

At his nomination hearing,  Mario Draghi was asked to dispel earlier allegations by Simon Johnson (BaselineScenario), relayed by the ex-Chair of ECON, that he might have a connection to the management of the transactions (recall job titles).  One of the two arguments he put forth, each contradicted by evidence, was that this was not possible since the transactions came into effect in 2001.

The same month, Goldman Sachs is one of a few to be awarded by the EU a contract to underwrite emergency funding bonds (EFSF).

July 2011

CRIS delivers its final report. It mentions a delegation meeting with senior members of Goldman Sachs. That is all.

October 2011

Spanish newspaper El Tiempo says that Mario Draghi had said in 2010 that there was more than one deal between Greece and Goldman Sachs. This may clash with his defense based on the fact the deal preceded his hiring. More significantly, it reveals documents coming from the Bank of Italy that refutes the other argument he put forth at the hearing (no dealings with any government).

November 2011

Marc Roche writes an article about Draghi taking the helms of the ECB. The article has the 'Goldman Sachs controls the world' overtone of his book, but he repeats Draghi's flimsy defense at the June hearing without questioning it (Le Monde).

December 2011

Olli Rehn meets with Mr Lloyd Blankfein, Chairman and CEO Goldman Sachs Group, in Brussels (press release).

As announced in the introduction, ECB-Watch reports on the discrepancy between Eurostat's audit report of Greece and the February testimony of Gerald Corrigan in the UK.

January 2012

Nick Dunbar catches up on the 2005 restructuring (NickDunbar).

March 2012

Nick Dunbar reports on Greek officials loosening their tongue (Bloomberg), highlighting the existence and scope of the 2005 restructuring. But he doesn't report that it evaded scrutiny at the EU and UK hearings and at the nomination of the ECB-President hearing. Marc Roche wrote a short summary of Dunbar's finding (Le Monde).


The added material we have looked at has confirmed our perception that EU officials have skewed the issue in a way that is favorable to those that might have been implicated.

Contrived investigation

In April 2010,  Olli Rehn prejudged of the outcome of the ongoing Eurostat audit because most of the evidence on the transactions was not examined until September 2010. He was careful to add to his "legal at the time" line, that he would take "appropriate measures" if anything new came to his attention. He failed to that the same day it was pronounced, because Corrigan's dubious blind spot about the 2005 restructuring was revealed in an exchange with the head of Eurostat.

Olli Rehn's argument that no legal action was warranted echoes that of the bank insofar as it hinges on a technicality: it's the accounting standard's fault for not having anticipated the loophole. That's contrived, even if we consider only the accounting treatment (see below). Furthermore there are allegations of breaches of primary dealer obligations and market abuse that haven't been considered.

Breaches of key principle and compliance

The secret loan was achieved through the joint use of a set of currency swaps on top of existing foreign denominated liabilities and a set of interest rate swaps, both of which used off-market parameters. We argue in another piece that the goal was to obtain a legal appearance that deviated from the economic reality, a loan. Yet,  a core principle of the standard in 2001 is that when the "legal appearance" conflicts with the economic reality, the second should take effect in the accounting treatment.

It is clear from  the audit report that Greece's statistical agency engaged in misleading behavior until if was reformed in 2010. This casts a doubt on the bank's other line of defense that Eurostat had validated the deal.

Keeping the can of worms shut

What is the blind spot for?

The short answer is that Goldman Sachs' (simplistic) defense that the 2001 deal was "legal at the time", is not compatible with the 2005 restructuring. How about 2005, what is legal then? Drawing attention to that would have opened a can of worms.

The blind spot was a gamble to keep the can of worms shut. It worked only thanks to the European Commission's willingness, presumably deliberate given its obviousness, to look the other way. This speaks, very likely, to the strength of the network of influence Goldman Sachs has built inside the EU institutions.

The success of this bet wouldn't have been complete without Goldman Sachs winning a contract from the EU in June 2011. Exactly the opposite of what Simon Johnson had foreseen as the likely outcome of Goldman's wrong actions in Greece a decade earlier (and, it turns out, as late as 2005).

The ECB connection

The May 2010 event implies that the ECB files contained data that was not in the public domain, notably the November 2010 Eurostat audit. It is possible, therefore, that confidential data was compromising for the successor of Trichet, who came under scrutiny the following month, June 2011. Regardless of the ECB files, the nomination process falls under a veil of suspicion due to the nominee's inconsistent explanations. In particular, the 2005 'significant restructuring' should have come up, but it didn't.

EU Parliament, inept

The special committee CRIS contains nothing of substance about the Greek debt scheme. In comparison the senate panel led by Levin and Coburn produced preliminary investigations of a number of cases in the mortgage crisis that were taken up by the SEC and the DOJ (McClatchy).

Media, uncritical

The financial media and, for that matter, Brussels correspondents, have not called into question the banks' defense and the EU's official response.

Marc Roche's article, in November 2011, probably generated outrage among readers of Le Monde. The nomination hearing, however, was in June 2011. That's when it would have mattered to write a story about the doubts that were raised about Draghi. Not only that, but Marc Roche's delayed coverage failed to show that Draghi's defense was flimsy, and it went along with the blind spot.

So goes for Nick Dunbar, who wrote about Eurostat's audit report in January 2012, whereas the report was made public in November 2010. He writes in his blog about participating in a BBC documentary and how his March story in Bloomberg was the most read (ND), but none of it challenges Goldman's defense and the European Commission's casual approach to the matter.



  1. My thanks to Max Keiser for listing this post on March 10, 2013 under the headline

    Anatomy of Greece's controlled economic implosion

  2. Zerohedge, Nov 11, 2012:

    Goldman wins agains as the [General] Court of the EU rules to keep secret the ECB involvement in Greek debt fudging.

    The General Court is a branch of the Court of Justice of the EU (CJEU) that deals with cases brought forward by private individuals, companies and some organisations (in this case Bloomberg news), and cases relating to competition law.

  3., July 21st, 2012: Failing to break up the big banks is destroying America


    Their Size Allows Them to Rig the Market [...] Goldman also admitted that its proprietary trading program can “manipulate the markets in unfair ways”. The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government’s blessings.

  4. About the 2005 blindspot.

    The Goldman Sachs spokesman must have come unprepared for knowing nothing about the 2005 'major restructuring' during EU Parliament's hearing. Yet, a few months before, he had told UK's TSC he had personally carried out an investigation of the matter. Not thorough enough, do you believe it?

    UK's Treasury Select Committee, February 2010.


    Mr Corrigan: [...]However, it is very clear to me, based on the investigation that I have done over the past few days, that those transactions were very much consistent and comparable with the standards of behaviour and measurement used by the European Community.

    EU Parliament, April 2010


    Mr Corrigan: "I don't know anything in reference to 2005. Most but not all of the credit risk exposure had with Greece was sold to other market participants."

    For more detail, see Sham parliamentary investigations of the GR/Goldman scandal

  5. The key Goldman Sachs (International) GR debt deal maker in 2001 (and perhaps thereafter) was Mrs Antigone Loudiadis.

    The FSA register lists here as CEO of Rothesay Life Ltd.

    Bloomberg, May 17, 2011: Death derivatives emerge from pension risks of living too long


    "Goldman Sachs-owned Rothesay Life Ltd. sold the most pension-plan insurance in 2010"

  6. Russia Today - Mar 15, 2013 - Wall Street Mafia Extorts Washington | Interview with Max Keiser

    Max Keiser (at 6:20): "Blankflein admittedly cooked the books of GR ..."

  7. Marc Roche is to Goldman-Sachs what the pilot fish is to the shark: lives off of it.

    Le Monde - Nov 15, 2012 -Goldman Sachs' cultural revolution - By March Roche

    What revolution? Slashing the pool of partners from 110 to 70 and investing in technology.