How Goldman Sachs Profited from Greece's Debt Crisis

Detroit, Chicago, and Oakland have all suffered from the terms presented by the finance firm.

Recent news reports featured a game of chicken played between the Greek government and the European Central Bank, but an unreported feature of the Greek debt story was the involvement of Goldman Sachs.

In 2001, the American finance firm offered to loan Greece $2.8 billion to cover immediate debts. By 2005, the amount due on the loan had risen to $5.1 billion, according to Robert Reich.

Reich, labor secretary under President Bill Clinton, explains that Greece initially accepted Goldman's terms because the country's ballooning debt was unacceptable by European Union standards.

He claims that Greek debt was caused in the first place by "years of corruption and tax avoidance by its wealthy. But..."

The complex financial tool used to leverage Greek debt, called "cross-currency" or "interest-rate" swaps, was also used by JPMorgan in an agreement with Italy in the 1990s. But so-called swaps have given American public institutions unfavorable terms as well.

The Detroit Water Department had to pay Goldman and other banks penalties totaling $547 million to terminate costly interest-rate swaps.

The Chicago school system ... must pay over $200 million in termination penalties on a Wall Street deal that had Chicago schools paying $36 million a year in interest-rate swaps.

A deal involving interest-rate swaps that Goldman struck with Oakland, California, more than a decade ago has ended up costing the city about $4 million a year, but Goldman has refused to allow Oakland out of the contract unless it ponies up a $16 million termination fee.

Nobody questions the freedom, responsibility, or necessity of entering into binding contracts, but would public entities have knowingly entered into such agreements knowing the potential downfalls?

Apparently not, as Greece refused an overture from Goldman in 2009 that offered another financial instrument that "would push the debt from Greece's healthcare system far into the future."

The moral question is whether private institutions should profit when public institutions make poor financial choices. War profiteers have long been shamed. When will we start to decry debt profiteers?

Here is Reich's documentary film released in 2013:

Photo: Bloomberg/Getty

​There are two kinds of failure – but only one is honorable

Malcolm Gladwell teaches "Get over yourself and get to work" for Big Think Edge.

Big Think Edge
  • Learn to recognize failure and know the big difference between panicking and choking.
  • At Big Think Edge, Malcolm Gladwell teaches how to check your inner critic and get clear on what failure is.
  • Subscribe to Big Think Edge before we launch on March 30 to get 20% off monthly and annual memberships.
Keep reading Show less

Why are so many objects in space shaped like discs?

It's one of the most consistent patterns in the unviverse. What causes it?

  • Spinning discs are everywhere – just look at our solar system, the rings of Saturn, and all the spiral galaxies in the universe.
  • Spinning discs are the result of two things: The force of gravity and a phenomenon in physics called the conservation of angular momentum.
  • Gravity brings matter together; the closer the matter gets, the more it accelerates – much like an ice skater who spins faster and faster the closer their arms get to their body. Then, this spinning cloud collapses due to up and down and diagonal collisions that cancel each other out until the only motion they have in common is the spin – and voila: A flat disc.

This is the best (and simplest) world map of religions

Both panoramic and detailed, this infographic manages to show both the size and distribution of world religions.

(c) CLO / Carrie Osgood
Strange Maps
  • At a glance, this map shows both the size and distribution of world religions.
  • See how religions mix at both national and regional level.
  • There's one country in the Americas without a Christian majority – which?
Keep reading Show less
Photo by Alina Grubnyak on Unsplash
Mind & Brain

Do human beings have a magnetic sense? Biologists know other animals do. They think it helps creatures including bees, turtles and birds navigate through the world.

Keep reading Show less