Essay on Case study 2 Goldman Sachs

Submitted By Albert-Tapia
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Goldman Sachs and The Greek Vail
Albert Tapia
Dr. Robert Vega
BUAD 5304 Ethics
June 7th 2015

Goldman Sachs February 11th, 2010 the European Union (EU) agreed on a strategy to bail out Greece, a country that had joined that European Monetary Union (EMU) in 1981. Greece had finally adopted the Euro currency in 2001. Greece went into unrecoverable debt by overspending income on social programs and other projects to benefit Greece, thus not allowing them to pay off loans, or borrow money to do so. In 2001, Greece wanted to join the EMU but faced certain obstacles concerning their current debt. Greece required a 60% debt-to-GDP ratio for admission to The EMU. Goldman Sachs presented two types of plans that would reduce reported Greek debt by $2 billion plus and allow Greece access to unreported, off-balance sheet financing. Greece was converting future cash flows into instant cash, and Greece was not required to report these obligation of future payment. Goldman Sachs stated “these transactions (both currency and interest rate hedges) were consistent with the Eurostat principles governing their use and disclosure at the time. The question whether or not Goldman Sachs’ actions were legal or unethical require perception from where the business arrangement took place. Under Eurostat rules, Goldman Sachs deal with Greece was a legitimate and legal transaction. The method of participating in such transactions known as swaps was a common business act, and allowed governments to insure their revenues from bond issues in foreign denominations. Given that these swaps were common business transactions in the EMU government, swaps are legal and their object not unethical. Goldman Sachs acted without concern of legality or unethical choice knowing that the swaps allowed Greece to hide debt from the European Union. The Greek government was most likely having conversation with various banks about their financial advisory needs, Greece was eagerly searching for ways to decrease their current fiscal debt levels and deficit numbers without having to reduce spending or increase taxes. If Goldman Sachs did not provide this service, Greece would have found other investment bankers to provide the service. Investment banks such as JP Morgan and Merrill Lynch were involved in cross currency swaps to help countries meet EU regulations for admission, due to the size of the transaction Goldman Sachs received a lot of negative attention for their deal with Greece. Goldman has faced criticism in Europe for its role in a 2001 currency swap that helped mask the size of its debt and deficit numbers. The transaction that happen could and did lead to review by the Federal Reserve in regards to the derivatives arrangements with Greece. The S.E.C had immediate interests in the exchange. Constant exposure from the media in various aspects
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