This Guardian article shows one way (the divorce between compensation and performance) in which financial capital does not function according to conservative economic theory, with its ideologically-convenient ignorance of human reflexivity and power.
Any reporter worth his salt knows that following Goldman Sachs’ trail of hell-ooze is always worth his time. Greg Palast reports on how Goldman Sachs colluded with Greece’s (former) right-wing government to 1) create the image that conservatives can govern a democracy, which they patently cannot, and 2) screw the world economy and the majority of the people in that economy, for their own unchecked aggrandizement.
Palast, who is selling his book Vulture’s Picnic, deserves to be quoted at length on this overview of the conservative-nursemaided primitive accumulation of Greek wealth:
“In 2002, Goldman Sachs secretly bought up €2.3 billion in Greek government debt, converted it all into yen and dollars, then immediately sold it back to Greece. Goldman took a huge loss on the trade. Is Goldman that stupid?
Goldman is stupid—like a fox. The deal was a con, with Goldman making up a phony-baloney exchange rate for the transaction. Why?
Goldman had cut a secret deal with the Greek government in power then. Their game: to conceal a massive budget deficit. Goldman’s fake loss was the Greek government’s fake gain. Goldman would get repayment of its “loss” from the government at loan-shark rates. The point is, through this crazy and costly legerdemain, Greece’s right-wing free-market government was able to pretend its deficits never exceeded 3 percent of GDP. Cool.
Fraudulent but cool.
But flim-flam isn’t cheap these days: On top of murderous interest payments, Goldman charged the Greeks over a quarter billion dollars in fees.
When the new Socialist government of George Papandreou came into office, they opened up the books and Goldman’s bats flew out.
Investors went berserk, demanding monster interest rates to lend more money to roll over this debt. Greece’s panicked bondholders rushed to buy insurance against the nation going bankrupt. The price of the bond-bust insurance, called a credit default swap (or CDS), also shot through the roof. Who made a big pile selling the CDS insurance?
Goldman. And those rotting bags of CDS’s sold by Goldman and others? Didn’t they know they were handing their customers gold-painted turds? That’s Goldman’s specialty.
In 2007, at the same time banks were selling suspect CDS’s and CDOs (packaged sub-prime mortgage securities), Goldman held a “net short” position against these securities. That is, Goldman was betting their financial “products” would end up in the toilet. Goldman picked up another half a billion dollars on their “net short” scam.
But, instead of cuffing Goldman’s CEO Lloyd Blankfein and parading him in a cage through the streets of Athens, we have the victims of the frauds, the Greek people, blamed. Blamed and soaked for the cost of it. The “spread” on Greek bonds (the term used for the risk premium paid on Greece’s corrupted debt) has now risen to — get ready for this––$14,000 per family per year.”
December 2011 update:
The rich mouth off, concerning what assholes they are. (Hint: MIGHTY assholes.)