Even worse, are they and other US banks the cause of Greece’s financial dire straits?

SEC Ben Bernanke made the comments while testifying on the US economy photo: BBC

Testifying yesterday before the Senate Banking Committee, SEC Chairman Ben Bernanke said the Goldman Sachs and other US banks are being investigated for potentially setting up the current crisis in Greece. To top it off, Goldman is suspected of shorting the finances of Greece, betting that the economy will fail.

Bernanke told the Senate Committee that Goldman, over a ten year period, set up sophisticated credit arrangements that disguised the true nature and amount of Greece’s debt.

“We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Bernanke said, testifying before the Senate banking committee.”

“Addressing concerns that financial firms have been engaging in trades to bet on a Greek default, Bernanke said that “using these instruments in a way that intentionally destabilizes a company or a country is counterproductive, and I’m sure the SEC will be looking into that.”  Washington Post

Using a variation of the derivatives that created the real-estate mortgage bubble in the US, Goldman was able to hide the amount of national debt Greece owed. Credit-default swaps, cross-currency swaps, and debt-swaps are the terms used to create the impression Greece was doing well financially.

However like a Ponzi scheme, eventually those deals cannot support the debt coverage and re-financing charges. Greece has been on a financial death-watch for months. The implications of a EU country going bankrupt are worrying everyone. The ripple effect will go beyond the borders of the EU.

In the meantime, Goldman is shorting the country, hedging bets the country will default. Hedging is a technique used during the 2009 financial meltdown to create billions in profits for some US banks as others started to fail.

“We have a situation in which major financial institutions are amplifying a public crisis for what would appear to be for private gain,” the banking committee’s chairman, Sen. Christopher J. Dodd said. (Washington Post)

UK reports

Goldman Sachs testified in the UK on its role in the Greek crisis. “A Goldman Sachs boss defended the bank’s 2001 debt-swap deal with Greece that may have allowed the country to mask the extent of its debt problems. Gerald Corrigan, chairman of Goldman Sachs Bank USA, the bank’s holding company, said it was “consistent” with the regulations of the time.  However, speaking in the UK to the Treasury Select Committee, he admitted that “with hindsight” it should have been more transparent. The debt-swap deal was legal at the time, but has since been prohibited.” BBC

The US was warned more than 10 years ago that the derivatives industry would cause financial chaos. With strong contributions for Wall Street, both the Clinton and the Bush administrations looked the other way while bankers destroyed the life savings of hundreds of millions of people.

The financial crisis is not over yet. Problems created by Wall Street and other international bankers are yet to be settled. The outcome is anyone’s guess.

With stories from the  Washington Post and the BBC