x Abu Dhabi, UAETuesday 23 January 2018

Our overhanging burden is all down to those bankers

Wayne Arnold believes Goldman Sachs is behind his recent weight gain.

My bathroom scales disclosed recently that I have added a few unwelcome kilos. I cannot prove anything yet, but I am pretty sure that Goldman Sachs is behind it. I have uncovered some pretty compelling evidence all backed up by some very big numbers to reduce its implausibility. Consider: last August, Goldman decided to help Dole Foods sell US$446 million (Dh1.63 billion) in stock so that Dole could cut down its $1.9bn in debt.

Goldman and the three other banks that underwrote the deal pulled in a reported $81m in fees, part of which probably went to pay the Goldman chief executive Lloyd Blankfein's $9m deferred stock bonus. One of Dole's biggest products is bananas, rising demand for which in booming Asia contributed to $3.7bn in fresh fruit sales at Dole in the first nine months of last year. Now, everyone knows that the best way to serve bananas is buried in ice cream and topped off with 500 calories of chocolate syrup, whipped cream, walnuts and a maraschino cherry.

Delicious and diabolical. But wait, there is more. Last month, Goldman signed up to help a company called Express sell $200m in stocks, again to pay down debts. And what does Express sell? Clothes. Coincidence? I do not think so. This is just one example of how bankers, motivated by pure unbridled greed, are pursuing profits at the expense of the public interest. You should hear what Goldman has been up to in Greece. Apparently, bankers from Goldman spent years finding ways to sell products to Greece that would enable its government to keep borrowing even after exceeding the limits it agreed to when it joined the EU.

Goldman would, for example, structure a deal in which investors would give Greece cash in return for a promise that it would pay them later with revenues from some lucrative business, such as the airports or the national lottery. And because this was packaged as the sale of future income, it was not technically a loan and so Greece did not have to list it among its debts. Then a little company that Goldman and other banks control last year conveniently established a set of bathroom scales for Greek debt called the iTraxx SovX Western Europe index. This index tracks the price of several European government credit default swaps (CDS), which are insurance policies against debt default.

You buy a credit default swap on a borrower and if he defaults, you still get paid. People trade these and the price rises or falls depending on how likely investors think the borrower is to pay up. Sneaky bankers! Imagine lending money to some fool you know is already excessively indebted and trying to profit from it. That's like offering Krispy Kreme credit cards with loyalty points to the morbidly obese. Or giving a second mortgage to some American with no credit rating and no education. That doesn't happen, does it?

Why yes, it does, except perhaps for the Krispy Kreme part. There are people out there who gladly profit from our lack of self control. I was at LuLu last week and there were absolutely no warning labels on the baklava. Does LuLu have no shame? And unless you are in a Toyota, there is virtually no way to hold a car company responsible for building SUVs that can roar down the motorway at 200kph and wrap themselves around lamp posts.

As a result, there is a rearguard action by columnists, pundits and other so-called experts to assign responsibility for Greece's debt problems on, of all people, Greeks. Haven't the Greeks been through enough already? First there was Helen of Troy, who launched 1,000 ships. Now we are awash in bad Greek analogies, being told to beware of Greeks bearing Trojan horses, singing siren songs or Spartan ditties.

And now the Europeans are after the CDS, in particular naked trading of them. Don't get excited. Naked trading is when the holder of the CDS does not own the bond the CDS is supposed to insure. In what is now a rather tired comparison, naked CDS trading has been likened to allowing your neighbour to buy fire insurance on your house. You should not be surprised if next time you see him he is fertilising your lawn with napalm.

Regulators want to know just who among the hedge funds has been betting against the euro, and if they are the same people who stand to be paid off if the Greeks default. Somehow I see this all coming back to Goldman. The Germans, meanwhile, are upset about having to bail out the profligate Greeks, with some German politicians suggesting that Greece should sell off a few islands to balance the books. Judging from the number of German retirees that appear to have occupied much of coastal Greece, they already have.

Forgotten, somehow, in all of this is the fact that when it comes to cheating on their fiscal diets, the Europeans look worse than the US government. The Greeks fudged their accounts when they joined the EU and kept cooking the books thereafter, low-balling their annual deficits and then revising them upwards later, according to a report by The Wall Street Journal. But it was an open secret, it seems, in the EU. Belgium, France, Portugal and Spain - none had apparently reached the targets needed to enter the currency union when they did so back in 1999.

I cannot decide who I should blame. Can I get another tray of baklava over here? warnold@thenational.ae