Question for Generali (Greece & Goldman)

Wookster

So Goldman helped Greece conceal the true extent of their borrowings.

Do you know exactly how? Through what mechanism this nefarious act was committed?

Generali

The short answer is via a swap. The longer answer is going to have to wait until tomorrow.

G'night!

PS The extend of the hidden debt was next to nothing in the grand scheme of things.

purch

My understanding is that it was via a Currency (FX) Swap, whereby debt paper issued in USD and JPY was swapped into a EUR liability at a favourable (to Greece) exchange rate, which in effect reduced the amount of the liability.

At a future date(maturity), the swap is reversed and the debt reinstated.

In a Forward FX Swap trade, the actual "price" traded is the difference between the spot (today) rate and the forward (maturity) rate.

Using a non current spot price (as this trade apparently did) would create a cash flow position, but not an actual FX loss or profit, as at maturity the swap is reversed using the same spot price (plus or minus the points for the swap)

drc

So, if the Greek people vote "no" in the referendum (lucky they get a say ), does that mean the only option left is bankruptcy for Greece and them saying goodbye to the Euro? If so, that would surely bring an end to the whole Euro[STRIKE]pe[/STRIKE] project?

ILW

The leaders of the Europe Project are so keen on expansion that they would not have looked too closely at Greeces books before allowing entry, in case they found something that may have slowed the progress.

TruckerT

ILW wrote: »

The leaders of the Europe Project are so keen on expansion that they would not have looked too closely at Greeces books before allowing entry, in case they found something that may have slowed the progress.

That sounds uncannily similar to the banks' failure to exploit the properrty market to their own advantage

These people are supposed to know what they are doing...

Maybe the Greek PM has finally accepted that the general public are not incapable of making a correct decision

TruckerT

sheffield_lad

Greece has no option left but default, even last weeks deal would not have been good enough as it's simple maths. Even with zero debt Greece would need to lend next year (again), as their public sector is bigger than the amount of taxes they bring in, even after the cuts!

No option now other than jump or be pushed!

They need to think what they can offer to generate growth, tourism would be a biggie especially with cheap drachma! umm more Mythos please barman!

drc

I've probably posted this already but it is an interesting article;

http://blogs.telegraph.co.uk/finance/andrewlilico/100011966/why-collapse-of-the-euro-equals-collapse-of-the-eu/

Generali

Purch's explanation is closest to my understanding.

Governments, especially those with dodgy credit histories, often issue debt in foreign currencies usually Yen or US Dollars. However they need the cash in their own currency so they enter into a currency swap. This is simply where you agree 2 FX trades, one today to convert the USD to EUR and a future one dated when the debt is repayable to swap the currencies back so you can repay the debt.

What happened in the Goldmans deal is that the FX rates used were higher than market rates. That meant that Greece got more EUR on the first FX trade and agreed to repay more in future. This meant that Greece got more cash up front, flattering their net debt position as it meant the debt was unchanged but the cash in the bank increased. It is an oddity of national accounting that this works as I don't think it would for a company.

Is it dodgy? Probably. Illegal? I don't think so. Fiendishly clever? Damn right. Deals like this fill me with a mix of hatred and admiration.

michaels

Which was presumably the point of the deal. It was thought by both sides to be in their interests for the Greeks, like other keen Europeans, to qualify for the Eur; so the Greeks just needed a way to massage their debt figures that was opaque enough for the EU to plausibly be able to pretend they thought the Greeks were good to go. The Italians pulled the same trick.

ILW wrote: »

The leaders of the Europe Project are so keen on expansion that they would not have looked too closely at Greeces books before allowing entry, in case they found something that may have slowed the progress.

beaujolais-nouveau

drc wrote: »

So, if the Greek people vote "no" in the referendum

I read on the DT "live Greece crisis" page that the Greek constitution (a) does not allow referenda on fiscal matters and (b) any decision to hold a referendum has to be agreed by 3/5 of the parliament - which is not very likely now.

Pity - I thought that a referendum was the least that the Greek PM should offer the Greek people, as it is they who will have all the suffering, whatever is decided.