...which is a story about some Greek guy that took 20 years to get home from a war over some babe that took forever while his wife fended off suitors (for 20 years...how hot was she!?) which is still a better tale than the nonsense that is swirling around the wine-dark sea today.
Anyway, the N Y Times finally figured out one part of this soap opera today when they published the estimated exposure of the European banks about which your humble blogger had provided to you about two months ago. This was the second time for the Times but at least they managed to connect the dots which shows that this is not merely a bail-out on the part of the Euros but a doubling-down on the part of everybody but especially the Germans whose savings system just LOVED sovereign risk which is now the property of the Bundesrepublik. Oops. Nevertheless, a deal from the Germans is promised by the weekend and a structure from the IMF by early next week which will hopefully get some money flowing because repayments are rapidly approaching and if missed, things could really get ugly. So sad. With a touch more trust this thing could have been covered up for a while longer until something intelligent could be put in place but no such luck. Bye elections in Germany, natural distrust not only for Greece but throughout the Euro Zone (as I once said these guys have been trying to kill each other for nine centuries), and a total lack of leadership about which we spoke the other day.
Of course everyone realizes that the Greek paper held by the Euro banks is considered to be discountable which for all intents and purposes means it can be considered to be money-good, with no risk of default and against which no reserves need be taken. Think any of those banks have reserved against this stuff? If you do, think again. No chance. None. Should we worry? Nah. The Euros don't think like us. The banks are covered. Messy but effective. Even if there is a default. But let us remember, the majority of the Greek debt is sovereign in nature; that is not the case in Spain, which the wags are preparing to put on a wooden peg and stick in the ground for some humanitarian like George Soros to take a wack at. The result of the to-ing and fro-ing over the weekend will merely affect the timing of the next round. Portugal is buggered already what with the small size of it's economy and the cost of debt service...which, incidentally, is a hell of an argument for a concerted effort to keep interest rates down world-wide although I'm not sure it will help. Sad. The Iberian Peninsular could become a real tale and in addition, Barca is out on a disallowed goal as a result of a hand ball. Now THAT'S a real tragedy.
Here's looking at you, kid.
Reader Carter, in response to yesterday's effort asked who I thought was the client and whether I though GS owed a duty to both the long and short client as well as the cash and synthetic clients.
I'm not quite sure as to all the parties about which (s)he speaks but in my mind the only "Client" would be Paulson who asked GS to structure the transaction. The question gets, of course, to the heart of the SEC case but in my mind I find it difficult to ascribe any duty to GS in this particular circumstance because of the nature of the transaction.
Back in the good old days when--and I mean WAY back--when I ran syndicated lending at a bank I on two occasions refused participations to other institutions because I knew (or believed) they were not in a position to properly evaluate the risk so I am fully aware and sympathetic to the arguments. I was also considered a nut, but that's another story. Times have changed and so have the morays of the people in the profession. But in this situation the product was a unique one which, by its very nature required positioning of opposites and that should have been know to all parties. ACA was highly sophisticated and, indeed, not only knew the nature of the referenced assets but chose them. It made a directional bet and was wrong. There is no question they knew there were shorts in the deal. The same is true of the Germans who were long-time players in real estate. To say you relied on the opinion of rating agencies in a transaction this complex is to say you are a fool. I don't know of the involvement of anyone else and therefore can't comment.
The fault I think is one of commission. I think it is disgraceful that a totally useless exercise like this would be conducted by a firm of the size, the market position and the prestige of GS. The price to be paid is not that of a politically motivated SEC but the price they are paying as I write this. The market exacts a heavy price. I really don't think--indeed, I hope--that things will ever be the same for Goldman Sachs.
Thank you Carter, I appreciate your attention and interest
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