LONDON, Feb. 28, 2010
U.S. Banks Helped Fuel Greek Debt Crisis
A Familiar Culprit - Credit Default Swaps - Played Role in Financial Crisis that Threatens to Topple Economies across Europe
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Play CBS Video Video Greek Economy Seeks Bailout A top European Union official will travel to Athens for talks on bailing out the Greek economy. As Mark Phillips reports, fingers are being pointed every which way, including at some U.S. banks.
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Demonstrators try to burn a European Union's flag during a protest outside EU offices in Athens on Wednesday, Feb. 10, 2010. The Greek financial crisis threatens to destabilize many European economies and U.S. banks are again being named as a culprit. (AP Photo/Thanassis Stavrakis)
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Fast Facts Greece Learn about the people, economy and history.
The demonstrators who have been filling the streets of Athens haven't been Greeks bearing gifts - they've been Greeks wanting gifts. And so far they aren't getting them.
"They think we are the enemy of Europe - that we are the enemy of them," one protestor said.
"Them" is the rest of the European Union, which Greece has been asking for a massive bailout so it can pay back some of its huge debt. The Greek economy has been severely hit by the recession and the government reportedly needs as much as $35 billion in loans to pay its bills.
And there are fears that Greece, which is part of the Euro currency zone, may drag the rest of the EU down with it, which is why European leaders like Germany's Angela Merkel have been refusing to loan Greece the money.
It's also why Greek Prime Minister George Papandreou has had to promise drastic spending cuts to get the rest of the EU to even consider helping him.
And now it turns out there's an American connection. Some of the big banks, including Goldman Sachs, may have been helping Greece hide the full extent of its debt by selling it a murky financial instrument called a credit-default swap - a key player in the U.S. financial crisis as well -
in which investors effectively bet against the Greek economy improving.
It's an arrangement that's now being investigated in Washington.
"Obviously using these instruments in way that intentionally destabilizes a country is counter-productive and we will be looking closely into it," Federal Reserve Chairman Ben Bernanke said recently.
The Greek economy is not large by European standards, but the potential domino effect threatens other weak economies.
"The real fear is not Greece going under to be honest, as sad as that would be, because Greece is actually a pretty small country," said Steven Bell, chief economist at British financial firm GLC Limited. "The problem is if Greece goes the speculators will move on to Portugal and then to Spain and then to Italy and that really would be a big effect."
And if the recession has proved anything, it's that once things start to go bad, they go bad everywhere.
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- If they were bad assets, why did the Greeks buy them? Or perhaps they only became "bad" once they soured....hmmm
It's amazing how many financial messes can be avoided by not using financial instruments you don't understand.....lol - Reply to this comment
- it is getting to be really hard to be financially responsible when all we see from big banks is irresponsible behavior bordering the criminal. after i pay my debts i will never, never use their credit cards or purchase anything unless i can pay for it cash.
Bank of Unamerican is not taking transactions with debit cards from other banks, they want us to take out money from their ATM.
Eff them. - Reply to this comment
- Shylocks
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- Glad that Geithner & Obama did away with their CEO bonuses. Maybe they will need more bailout money?
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- They need to start dragging those "most desired" former enron speculators out of wallstreet. The same ones that morgan stanley and goldman sachs hired. The same ones that caused rolling blackouts in California and drove gas to 4 dollars a gallon. Leg irons would be appropriate attire!
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- This statement says everything...counter-productive??? ***, isn't it criminal?
"Obviously using these instruments in way that intentionally destabilizes a country is counter-productive and we will be looking closely into it," Federal Reserve Chairman Ben Bernanke said recently. - Reply to this comment
- Shady deals are going to bring down the world's economy. There's just no limit to what greed can accomplish.
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- Goldman Sache and probably others are at it again. Using shady deals to mak quick profits but if it falls apart they will go o Congress for a bail out. These people are absolutely amoral. The politicians that will help them are just as bad. We need some guillotines built and placed along Wall Street and in front of the Capital with a phase Who will be first to test the blade.
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- This is one of the most unthinkable examples of a government fiscal crisis to ever witness in a lifetime. The fragile economies are comparable to a spinning plate balanced on the tip of a stick. If the plate spins fast, all is well. If it slows and becomes wobbly, the danger of falling off to the floor is high.
Economists agree that President Obama's decision to grade our banks and provide report cards for their performance was a fair and sensible approach.
The Euro alliance will be doing the same thing, but most fear that without protection from experiencing a run on weaker European banks, the evaluation will aggravate and possibly destabilize some parts of the Euro alliance.
Economic volatility on this scale tends to make investors loose confidence and play musical chairs with their money. - Reply to this comment
