The Devil’s Work

The Greek budget deficit saga is becoming more bizarre by the day. It now turns out that the Greek government, with the help of the American investment bank Goldman Sachs, has seriously tampered with the figures — to the extent that, using derivatives, the budget deficit was squeezed to satisfy E.U. requirements.

This practice is still being used. In November 2009, Goldman Sachs presented Greece with a plan to defer the financing of health care to future periods so that the budget deficit would look somewhat better.

Goldman Sachs is not the only bank on Wall Street that is trying to “fix” poverty-stricken European governments. It is known that JP Morgan magicked away debts of a billion or more for Italy in order to clean up their budget figures.

It is not only Greece and Italy that are said to have become involved in such questionable practices.

Derivatives have their use, namely to limit risk. But the dishonest use of this sort of financial instrument goes one step too far.

What you end up with is a conspiracy on a huge scale in which hot-shot bankers present unethical proposals to governments that would rather cheat than cut back. The investment bankers themselves demonstrate a complete lack of morality. Perhaps that is not so surprising. Government debt worldwide is so enormous that a lot of money can be earned from it. The temptation, therefore, to play with the debt and to hide it away, is becoming great.

This behavior is inadvisable. Governments are not allowed to cheat any more than bankers are allowed to help them. The whiz kids on Wall Street are not allowed to become involved in that kind of practice.

Across the world, the battle against fiscal fraud is intensifying. And the banks that have helped are coming under the spotlight. Perhaps it is high time that banks that become involved in the selling of financial instruments for the falsification of government statistics should be labeled as “pariahs.”

Of course, it is useful for derivatives to be better regulated and, for example, a central regulatory authority to be set up so that these financial instruments can be tracked. But such measures do not preclude future abuses of such products. In the investment banks, there will always be a whiz kid who finds a loophole before the regulation even takes effect. That is what they are so generously paid for.

We are only doing “God’s work,” is what the boss of Goldman Sachs, Lloyd Blankfein, recently let slip. Whoever examines the role of Goldman Sachs in the Greek tragedy can only conclude that it is no longer about God’s work, but rather the work of the devil.