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Rock Street, San Francisco

This is the second of a three part story on the part Goldman Sachs played in creating the European financial crisis. The first part of the story is posted earlier in the blog.

In short, Goldman converted ten billion dollars of Greek debt that had been purchased with U.S. dollars and Japanese yen into debt that could be repaid in Euros. However, in creating this “currency swap”, they used a fictitious value for the Euros which lowered the reported amount of Greek debt by billions.

The structure enabled Greece to owe billions to Goldman in a currency deal without having to report it to the European Union as a loan, which is clearly what it was. Turns out using the Alice in Wonderland value for the Euro wasn’t illegal, just deceptive as hell.

Having cut the deal, Goldman’s covert loan needed to be paid. Greed never sleeps. And since the faux currency swap was not officially a loan, Goldman had to have some way to get repaid other than “loan payments”. To wit, the pirates of pinstripe go on a Hellenic treasure hunt and wind up commandeering the rights to a few of the country’s income-producing crown jewels — airport fees, the national lottery and toll road income.

Pericles, where are you?

Securing the rights to the tax revenues, they wrap the repayment into an interest rate swap. (Don’t go to sleep on me now, I’ll explain).

Greece had previously issued some bonds and had to pay the bond holders a fixed rate of interest of 4%. So, as their part of the swap, Goldman agreed to pay Greece a fixed rate of 4%. In return, the government of Greece agreed to pay Goldman a floating rate.

The exact amount Greece had to pay Goldman is not known. However, what is reported is that Goldman received a rate in excess of LIBOR (the rate set in the UK that banks charge each other for short term loans) + 6.6%.

The rate was floating, not fixed, but note that even if LIBOR was zero – 0% – (which it wasn’t) Goldman would be paying Greece 4% but would be receiving 6.6%. The absolute worst they could get, then, was an annual profit of 2.6% on a deal for $10 billion in bonds ($260,000,000).

But that’s not really enough to push those year-ending Goldman bonus babies to the Hamptons. Oh no, not by a long shot, because Goldman also picked up a fee to arrange this charade of about $300,000,000.

In summary, Goldman arranges what appears to be a currency swap for Greece, which is really a loan that doesn’t have to be reported to the EU as such.

In so doing, Greece pushes its existing debt back to the future, is accepted into the European Union, gets yet another loan, and still has access to the debt needle.

Goldman gets a fee of $300,000,000 for setting the deal up and ongoing revenue from an interest rate swap estimated at $260,000,000 a year from government owned assets.

Yeah, Baby!

Of course, the story doesn’t end there. But then you knew that, didn’t you?


In 2005, Goldman apparently, and we say, “apparently” as all of these figures are a matter of news reports, not official Goldman records, having received their eye-watering fee and having recouped about a billion dollars from the interest rate swap (which is what they were reportedly out-of-pocket on the deal), sold the balance of the deal to the National Bank of Greece.

At this point, Goldman is out of it; Greece has joined the European Union and it now owes the balance of the off-balance-sheet loan of about $9 billion to their homies at the National Bank of Greece.

All is well…well, that is until 2008 and the eruption of the Global Financial Crisis.


As the planet’s financial system started to go into the DTs, the European Central Bank did what all central banks do at such times, they went to print mode. They structured a program designed to pour billions of Euros into the European banking system.

The National Bank of Greece wanted some of that cheap coin. They could borrow it from the European Central Bank (ECB) and lend it out at handsomely higher rates. Yum, yum. But to get it, they had to pledge some collateral to the ECB, collateral they didn’t have.

What they did have was the income stream from the government tax revenues that they had purchased from Goldman three years earlier. There was just one problem, the European Central Bank would not lend to them on that deal. They needed to pledge some bonds.

It’s midnight in Athens. From the roof of the headquarters office of the National Bank of Greece we see a gigantic spot light beaming an enormous image of a dollar sign into the Mediterranean sky, a la the Bat Signal.

The next morning, the Humvee is back with Julia, baldy and their Blackberries. Goldman goes into closed-door session with representatives of the National Bank of Greece and the Treasury officials of the Hellenic Republic. At this point, the Greek government owes the National Bank of Greece about seven billion dollars.

Goldman channels Houdini yet again. They create and execute what has come to be called “The Hellenic Swap.” And if you want to see some sleight of hand on the stage of international finance, watch this, because this kind of fiscal alchemy is going on 24/7 around the planet with governments large and small.

In December, 2008, Goldman arranges an interest rate swap between the Greek government and the National Bank of Greece (The Hellenic Swap).


Under the terms of this arrangement, the Greek Government (the Hellenic Republic) is to receive fixed-interest payments from the National Bank of Greece of 4.5 % on $6.96 billion dollars.

In return, Greece agrees to pay the National Bank of Greece an interest rate of LIBOR + 6.6% on that amount of money. LIBOR was .8% at the time, making the Greece’s interest rate 7.4%. This rate could fluctuate but could never go below 6.6%.

As can be seen, the National Bank of Greece makes a profit of 2.9% on this swap (about $201,000,000 a year). Nice.

Except the National Bank of Greece doesn’t keep the swap. Not exactly.

Shortly after setting up the interest rate swap between the government and the bank, Goldman sets up an entity in London called Titlos, PLC. The name isn’t important, but what they do is. Titlos is what is called a “Special Purpose Vehicle (SPV).” That means it is a legal entity that was set up for the sole purpose of conducting a financial transaction.

Titlos issues $6.96 billion worth of notes on which interest is payable.

Titlos then trades the notes to the National Bank of Greece in exchange for their rights to the Hellenic Swap. It so happens that the notes issued by Titlos are the same amount as the balance of the loan that Greece owed the bank ($6.96 billion).

Greece now owes Titlos the $6.96 billion and is paying the Goldman created shell the 7.4% interest while receiving a fixed rate of 4.5%.

Titlos receives money, takes an administrative fee and the 4.5% that it must pay Greece, and pays the balance to the National Bank of Greece which services the interest due on the notes.

And Shazam! The National Bank of Greece now has bonds that it can pledge to the European Central Bank so they can borrow some of that cheap money and lend it dear. In essence, Goldman has become a Central Bank creating money out of thin air.

We love you, Goldman.

(Two years later, when the country is on the verge of financial collapse, Goldman issues a statement downgrading the National Bank of Greece saying, “Greece faces both a liquidity and, potentially, a solvency problem. While we believe that, individually, Greek banks tend to be well-run, the problems they face are outside their operational control.”)

Isn’t that sweet?

Part III to follow shortyl

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4 Replies to “A Greek Tragedy – Goldman Sachs and the European financial crisis”

  1. there is a new movement in Greece now from various academics and intelectuals that is trying to form a commitie of accounting control to find out how the Greek dept is created, what is its content, how loans were signed and given and into wht extent this dept is legal and shoulde repaid or not. The story that you post here is one of the examples i guess of what they are tying to uncover. I would like your opinion on whether a dept created in such a way and that has to be repaid by the Greek citizens would have a chance to be proven odious from a legal perspective in any international court.

    thank you in advance

    1. Dear Nikos,

      Pardon the delay in responding. There was an admin glitch here on the blog.

      That said, unfortunately, I am not a lawyer and don’t know the answer to your question.

      What I can say is that the government has handled the finances of the country in a shameful manner. Whether these acts are illegal or not, I do not know.


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