Goldman Should Withdraw Greece’s Euro Swap Dodge: Mark Gilbert
Product recall notices are a fact of life for consumer-product makers. Dysfunctional hinges trap tiny fingers; undesirable fluids leak into foodstuffs; and sticky accelerator pedals send cars zooming in mysterious ways, forcing manufacturers into costly withdrawals.
No such strictures apply to the world of banking. No matter how hazardous the mathematical engineering turns out to be, or how destructive the monetary consequences, the finance industry peddles moonshine without fear of sanction or punishment. Here are some recall notices that should be issued.
Product: Greek deficit-dodging derivatives swap. Manufacturer: Goldman Sachs Group Inc.
This medication, designed to ease swollen deficits for nations trying to swallow the euro, seemed safe when first tested on Italy to buff its finances with a yen-denominated swap. Later trials in Greece show that even small doses can lead to uncontrollable fibbing, surging yields and, potentially, the unraveling of the euro. See next product recall.
Product: The euro. Manufacturer: The Bundesbank.
Post-production modifications have removed key safety features from the common currency, resulting in debt payloads that the structure was not engineered to bear. Should only be used in conjunction with a centralized fiscal system, a default contingency plan and a German at the helm of the European Central Bank. See next product recall.
Product: Fiat currencies. Manufacturer: Thieving governments.
Fiat currencies, available globally, are marketed as stores of wealth and as a medium of exchange. New tests have shown them to be worth only the paper they are printed on. May cause gold bugs to foam at the mouth and hallucinate about tiny black helicopters showering the world with money. Holders should storm the gates of government and demand a return to the gold standard and a free exchange for bullion-backed units.
Product: Quantitative easing. Manufacturer: Desperate central banks.
The side effects of this elixir, often mislabeled Keynesian, include artificially suppressed government bond yields and debt addiction. Will cause inflation. May cause hyperinflation. Sufferers of anemic economies should switch instead to a diet of suppressed spending and a shrunken financial system.
Product: Asian promises to purchase euro government debt. Manufacturers: China and Japan.
When sourced from Beijing, may induce uncontrollable urge among European governments to scrap arms embargo, especially when sweetened with cute pandas. The Tokyo version may provoke delusions of global financial relevance in the buyer.
Product: Bank stress tests. Manufacturer: Same regulators who missed the credit crunch.
May cause complacency on the part of bond- and shareholders alike, followed by a loss of capital. Fixed-income investors also risk alopecia due to arbitrary rule-changing by German politicians with no regard for the consequences of stinging the only people willing to lend to their financial institutions.
Product: Collateralized debt obligations. Manufacturer: Every money-grubbing investment bank.
Incorrectly hallmarked with AAA ratings. Handle with care, may contain toxic mortgage waste that faces further deterioration this year as resetting of U.S. home loans triggers more delinquencies and foreclosures.
Product: Bank bailouts. Manufacturer: Unwilling and unconsulted taxpayers of the world.
May cause a sensation of too-big-to-fail in the patient, leading to hubris and moral hazard. Other side effects include unjustifiably elevated bonuses, smugness and an inability to pronounce the word “sorry.”
Mark Gilbert, author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable,” is the London bureau chief and a columnist for Bloomberg News. The opinions expressed are his own.)
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