Defaulting banks - where will it stop?

[Jan Klimkowski]

Well, just when it couldn't get any more corrupt, Zero Hedge has just posted a long article, based on an official report seen and noted in 2001 by the Council of Foreign Relations, which strongly suggests that the economies of many major European countries are based on counterparty swaps and Enron-style accounting.

The magician ("Counterpart N") who conjured money quite literally out of thin air being most probably none other than Goldman Sachs.

Here are some excerpts from the Zero Hedge article:

Disclosures made in this report forced the Council of Foreign Relations to make an explicit comparison between Italy and the greatest corporate fraud of the early 2000's: Enron.

The parallel with the Enron transactions is uncanny. Like Enron, Italy took on debt but chose to represent it as a hedge for a yen bond it had issued in May 1995, which matured in September 1998. As with Enron, the hedge explanation was clearly misleading. If it had been a hedge, the exchange rate used would simply have been the market rate at the time the swap transaction was entered into. Off-market rate swaps were clearly selected for the purpose of producing interest revenue in 1997, with euro entry as the goal.

In other words, cooking the public debt books in the EU started not with Greece and Goldman in 2001, but with Italy and Counteparty N in 1995; we are fully confident that many more examples will emerge shortly.

How widespread is this sort of financial chicanery among sovereign borrowers? It is very difficult to know, since these deals are done over the counter with no public paper trail. Gustavo Piga, author of the ISMA/ CFR report, uncovered the Italian transaction quite accidentally. But there are powerful reasons for concern.

First, governments have clear incentives to cook the books. The EU continues to impose fiscal expenditure restrictions on eurozone governments, violation of which can result in censure and fines. The International Monetary Fund imposes fiscal conditionality on its client governments, which naturally have a strong incentive to keep the Fund from closing the money spigot. Derivatives can be used to shuffle cash flows through time in ways that current accounting rules do not prevent.

Second, banks are only too willing to market derivatives tricks to their big client governments, particularly when it puts them at the front of the queue for future bond issues and privatisations.

Third, if the integrity of government financial data is fatally undermined, the damage to stock and bond markets will dwarf the "Enron effect" that has recently pummelled the Dow.

We urge everyone to reread the last sentence as many times as needed, until the truth sinks in.

when one grasps the extent and severity of such swap transactions, one realizes the massive opportunity for conflict of interest, of mutual blackmail, of the desire for secrecy, and of counterparty risk, which is why Goldman is and has always been the preferred party of interest - just how many other such deals is Goldman on the hook for? Were Hank Paulson to have allowed Goldman to implode, it is likely that most if not all European governments, which one guesses currently have numerous other comparable secret arrangements with "Counterpart N", would have all suffered massive and irreparable losses on existing swap arrangements. This is merely yet another way in which the Federal Reserve-Goldman Sachs complex bailed out the world, however this time using the threat of the unravelling of completely confidential swap arrangements, which were known to at most several high level bureaucrats, and of course Lloyd Blankfein (and Hank Paulson, and Jon Corzine prior).

The stunning revelation: Goldman would come to the rescue again and again, likely extracting many pounds of flesh to wave its magice wand and allow countries to not only enter the EU, but to subsequently mooch billions of dollars off of its various structural funds. Without Goldman's assistance Italy would not have been let into the eurozone. And Goldman did some critical window dressing not just Italy and Greece, but very likely most of Europe! We, for one, can't wait for disclosure of all the heretofore confidential swap agreements underwritten by Goldman.

If Greece and Italy are any indication, it only took a phone call by any of these governments to former Goldman CEOs Jon Corzine (latter part of 90's) and Hank Paulson (Goldman CEO until 2006), to arrange the same kind of non-standard, off-market swaps as has now been evidenced were used by both Greece and Italy. After all, keep in mind, the whole purposes of these "Goldman" swaps is to merely reduce public debt interest payment to align with EU and EMU artificially low fiscal requirements, at the expense of debt notional, which is not as constrictive an economic barrier according to Maastricht and other supervisory requirements. When the truth finally comes out that all of Europe's finances over the past 10 years have been a sham, covered up and facilitated very legally by Goldman Sachs, the Euro was (will) collapse under the weight of the decade of lies that have made it seem that the eurozone is an economically viable construct.

As for Mr. Piga's report, on second thought we may have been too harsh on EuroStat. In 2001, Euromoney reported that:

ISMA was concerned enough to cancel a press conference with Gustavo Piga, the author of the report, because it said his safety was not certain.

It is thus very likely that most if not all may have missed it. After all, it was caught by just a few publications at the time, the CFR, which went so far as to claim Italy is Europe's Enron, being, of course, one of them. Yet inquiring minds would be very curious to uncover whether the danger to Mr. Piga's life came from representatives of Country M or Countepart N. If in the distant 2001 disclosure of facts about shady involvements of countries such as Italy and their counterparties such as Goldman Sachs, raised the specter of a threat on a person's life, we dread to imagine just how much other recent facts have been "silenced" over the past 2 years.

http://www.zerohedge.com/article/step-as...r-minus-16

If major European government have totally fictitious balance sheets, then those economies will collapse. Twentieth Century European history suggests the results will be horrendous, as Bertolt Brecht prophesied:

Do not rejoice in his defeat, you men. For though the world has stood up and stopped the bastard, the bitch that bore him is in heat again.