The New York Times had a strong Sunday story about Wall Street’s role in masking the Greek debt that is shaking Europe’s monetary union.

As the Times front pager put it in all-too-familiar terms:

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

The story looks shocking and new to many readers—and it is. But, like so much of what passes before our eyes these days, there were rumblings about this tale on the Internets well before the Times story appeared.

The Grecian yarn is a pretty good example of how the emerging global news pinball machine works when it’s working well.

Der Spiegel broke the ice on this story on February 8 with a piece outlining the Wall Street role in the current drama. Here’s a bit:

Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country’s already bloated deficit.

The magazine went on to explain how Greek debt managers entered a deal with Goldman bankers in early 2002 involving “so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.”

Such transactions are part of normal government refinancing. Europe’s governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

Bloggers quickly grabbed onto that account, pointing to Der Spiegel and adding a bit of commentary.

Here’s Clusterstock’s take:

This looks pretty bad for both Goldman and Greece, as if things could look worse.

Naked Capitalism noticed, too.

Readers may know that one point of contention in the worries about Greece’s deficits is that it had hidden the fact that it violated Maastricht rule that fine eurozone countries whose fiscal deficits exceed 3% of GDP.

How was this subterfuge achieved? While the Greek government engaged in some bogus accounting on its own, it also got some help from Goldman.

The Times did well by acknowledging that it wasn’t the first to notice Wall Street’s Grecian formula.

While Wall Street’s handiwork in Europe has received little attention on this side of the Atlantic, it has been sharply criticized in Greece and in magazines like Der Spiegel in Germany.

And it adds a lot of detail to Der Spiegel’s account, including a late 2009 pitch that the Greek government ultimately didn’t pursue.


Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

Even in this very democratic, and very globalized news world, the Times treatment gave the story an extra pop, drawing the attention of Simon Johnson, BusinessWeek, the Journal, and points in between.

In this case, the new news dynamic improves on the old paradigm by bringing attention to a story that, let’s face it, would most likely have never made it over here. At a minimum, it added serious giddyup to the process.

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Holly Yeager is CJR's Peterson Fellow, covering fiscal and economic policy. She is based in Washington and reachable at holly.yeager@gmail.com.