What Goldman and other the other banks have done in Greece is no different from what they have been doing around the world for the past ten years. They facilitate various forms of questionable financial instruments with corrupt partners, and then trade on their detailed knowledge of that misrepresentation, mispricing and even outright fraud to reap enormous profits, often at the expense of the productive economy and programs designed to protect legitimate commercial banking activities. This is at the very core of the CDO financial crisis in the States.
Banks should not be able to trade in their own proprietary portfolios on the integrity of financial assets of their own devices. Otherwise, the conflicts of interest are irresistible. This is the very problem that Glass-Steagall was originally enacted in 1933 to prevent.
Only the most conservative and restrained banking system can function in the face of such obvious temptations for self-dealing. And this does not describe the financial system in the US.
Setting up regulatory hurdles, ‘chinese walls,’ and capital requirements to try and stem such obvious temptation to greed is a fool’s errand, but one that the banks encourage, knowing full well they will find ways to circumvent them as fast as they can be created.
The banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.
Bernanke: Looking at Goldman Sachs role in Greece
Thu Feb 25, 2010 10:03am EST
WASHINGTON (Reuters) – The Federal Reserve is examining the role that Wall Street firms including Goldman Sachs (GS.N) played in helping Greece arrange credit default swaps, Fed Chairman Ben Bernanke said on Thursday.
“We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece,” Bernanke said in response to a question for Senate banking Committee Chairman Chris Dodd.
Bernanke said the Securities and Exchange Commission was also “interested” in the issue and added: “Obviously, using these instruments in a way that potentially destabilizes a company or a country is counterproductive.”