Heard in the Village: March 2010

The villagers liked the start of the editorial In the March 1, 2010 issue of BARRON’S, “If you lie down with dogs, you’ll get up with fleas. Goldman Sachs and the Greek government lay down together, and now the European Union (EU) suffers from a plague of fleas.”

The story is about how Goldman, in 2001, helped Greece “dress up” their finances to get into the EU by converting debt into currency hedges that weren’t reported as national liabilities. The article says Goldman lives to help its customers do what they want, even if it isn’t in the clients best interests. The currency hedges were structured to lose money for Greece in proportion to the debt being hidden plus fees. Now Goldman is buying big interests in credit default swaps that would pay the firm if Greece didn’t pay their debts. Goldman help create the problem and it stands to profit from it-a perfect Wall Street play.

“After decades of developing ever-more efficient ways of front-running their customers, Wall Street casino sharks have ceased to care about their clients. The sharks have no concept of fiduciary duty, unless there is a controlling legal principle and cops to enforce it.”

“...some people blame the existence of credit-default swaps for the Greek problems, which is like blaming the dog for having fleas. The solution is fleas powder-ethical practices and fiscal prudence-all around.”

The villagers thought this was just another example of what has and still is going on around the world. The lack of ethics and fiscal prudence is what helped create the problem. Wall Street, Congress and many parts of business continue to have huge conflicts of interests and nothing of any substance is being done about it. To compound the problem, the Fed continues to add gasoline to the fire of money supply, low rates and loan purchases.

The villagers were frustrated with what is going on because they believe it only adds to length of time before things improves and it also is likely to make the market decline deeper than it needed to be to correct the huge speculative excesses. They were optimist because they also believed they could buy stocks cheaper and with better yields. They were looking forward to making lemonade out the current economic lemons.

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