Goldman’s Greek and Malaysian Deals

If you haven’t read Robert Reich’s explanation in the July issue of The Nation of how Goldman Sachs engineered Greece’s downfall you really ought to take a look. And please note this isn’t the only country in the world in which Goldman Sachs has become a persona non grata.

Reich’s allegations regarding Greece

Goldman Sachs came to the rescue, arranging a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.

As a result, about 2 percent of Greece’s debt magically disappeared from its national accounts.

The consequences were severe:

By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion.

Mario Draghi, head of the European Central Bank (ECB), who is now refusing to include Greece in its quantitative easing bailout of poorer euro dollar countries, was Goldman’s international division director when Greece agreed to lock in the 5.1 billion euros it came to owe Goldman Sachs just four years after Greece had agreed to pay Goldman 2.8 billion euros.

The ECB, we should note is part of the troika that is imposing its “reforms” on the new Greek government.

In late June of this year, the ECB blocked a request from the Bank of Greece for more emergency loans from the ECB, thus creating a financial and political crisis in Greece when cash withdawals by Greek bank depositors were limited to 60 euros a day.

Professor Reich points the finger at Goldman’s deals for being the main cause in bringing Greece’s government to its knees this July.

Reich alleges Greece’s healthcare system was another target of Goldman Sachs’ profit-making, debt-deepening deals in 2009. This time the Greek government had the sense to turn down Goldman’s offer.

US cities, notably Detroit, Michigan and Oakland, California were Goldman’s next targets. They too have paid dearly for investing with this company.

But none of these deals compare with the scope of what is now alleged to be the result of Goldman’s operations in Malaysia.

Goldman’s Loan Deal for Malaysia

In 2013, for a fee of $300 million, Goldman arranged a three billion dollar bond for a state-owned investment fund run by the Finance Ministry of Malasia.

The name of that deal (to the 1Malaysia Development Berhad fund) is the acronym, 1MDB.

Scandal erupted when the prime minister of Malaysia, Najib Razak, the man who set up the 1MDB investment fund in 2009, was thought to have received payments from the 1MDB fund totaling around $700 million. Some Malaysians believe this money came from Goldman Sachs.

As a result of the scandal, an investigation of the 1MDB fund arose. Najib Razak denies taking money for personal gain, and there is no evidence the alleged bribe was paid by Goldman.

However, the 1MDB fund is already eleven billion dollars in debt. In response, Abu Dhabi’s sovereign state fund invested one billion dollars in Malaysia’s government-owned fund. Nevertheless, the Malaysian fund still needed to reschedule payments on debt it owes.

Investigators of the 1MDB fund want to know how the 1MDB managed to borrow 11 billion dollars without the means to pay off that much debt.

In the meantime, Goldman’s popularity has declined steadily as many investors interested in Malaysia are going elsewhere for advice.

Reprinted from Huffington Post