Banks That Hid Debt Now Pushing Greece Toward Ruin

Credit-default swaps make default a self-fulfilling prophecy
By Jane Yager,  Newser Staff
Posted Feb 25, 2010 7:23 AM CST
Banks That Hid Debt Now Pushing Greece Toward Ruin
A general view of a demonstration during a 24-hour nationwide strike in Athens, Greece, on Feb. 24, 2010, to protest against government austerity measures intended to fix the country's debt crisis.   (AP Photo)

The same banks that fed the Greek financial crisis are wagering on the country's collapse— and in doing so, critics say, they're making default more likely. Goldman Sachs, JP Morgan and others who helped mask the true extent of Greece's financial problems are now placing bets against the country on a new index that lets players make credit-default swaps-- essentially, bets on whether or not a country will go bust.

The index was created last September, and the market on betting against Greece has since exploded, the New York Times reports. The index is a vicious circle: The more bets are placed against Greece, the harder it gets for Athens to borrow the funds it needs to pay its bills. The more trouble Athens has, the more investors wager against it. Critics say similar swap schemes contributed to the collapse of Lehman Brothers.
(More Greece stories.)

Get the news faster.
Tap to install our app.
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.