EDITOR’S NOTE: We solicited a response from Nation contributor William D. Cohan to Robert B. Reich’s recent article, “How Goldman Sachs Profited From the Greek Debt Crisis,” which was posted on our website on July 16 and appeared in our August 3/10 print edition. Here is that response, followed by a rebuttal from Reich.
Not content to keep his terribly misleading musings about the role he suspects Goldman Sachs played in Greece’s financial woes to his Facebook page, Robert Reich, a Berkeley economics professor and a former secretary of labor, has reiterated them this past week to a wider audience in the pages of The Nation. That’s a shame, not because the former Rhodes scholar is not entitled to his views, but rather because, as I wrote in a recent New York Times DealB%k column, he should know better than to stoop to populist demagoguery to try to sort out responsibility for the Greek economic tragedy. “The crisis was exacerbated years ago by a deal with Goldman Sachs, engineered by Goldman’s current CEO LLoyd Blankfein,” Reich wrote. “Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it. And just as with the American subprime crisis, and the current plight of many American cities, Wall Street’s predatory lending played an important although little-recognized role.”
Reich’s facts are wrong on so many different levels that he must again be called out for such obvious pandering. When I did this previously in DealB%k, Reich’s feeble rejoinder to me—also on Facebook—was that of course I was defending Goldman Sachs, because I used to work on Wall Street. While it is true that I worked as a Wall Street banker for 17 years, from 1987 to 2004, at which time I returned to journalism, only in a polarized early-21st-century America could relaying the actual facts of what Goldman and Greece did together in 2001 and 2002 be dismissed as a bias in favor of Wall Street. As anyone who has taken the time to read any of my three books about Wall Street or countless magazine articles or opinion columns knows all too well, I am more than happy, in fact eager, to criticize Wall Street for its seemingly unending self-interested and hugely detrimental behavior.
I think we can stipulate that Wall Street’s culture is badly broken and in dire need of a makeover, before its prudential regulators impose such changes in ways that Wall Street will like even less. One good place to start would be by revamping Wall Street’s asynchronous compensation system, which rewards bankers, traders, and executives with big bonuses for taking risks with other people’s money without the slightest hint of accountability when things go wrong.
Lord knows, I hate being put in the position of defending Goldman Sachs. But for the second time in two weeks, Reich leaves me little choice, if only because I cannot stand that people like Reich, or Elizabeth Warren—who should know better and still choose to be intentionally misleading—need to be corrected, over and over again.
The truth is: First, Lloyd Blankfein had nothing to do with the currency swaps Goldman’s bankers in London constructed for Greece more than a decade ago. Second, Greece’s current financial woes were not “exacerbated” by Goldman Sachs. In 2001, Greece had a problem that it wanted help solving: Its debt as a percentage of its GDP was at a level above what would be acceptable to the people running the European Union. If Greece wanted to join the EU, it needed to show the EU that it could reduce its debt. Greece’s problem was that it wanted a legal way to reduce its dollar- and yen-denominated debt and show the EU that it was serious about debt reduction. In other words, Greece’s excessive leverage was already a big problem long before Goldman Sachs came along, which Reich tacitly acknowledges in his Nation piece, but not before he then blames Goldman for being Greece’s “biggest enabler.” It is simply not conceivable that a former labor secretary, Rhodes scholar, and current economics professor would not know the nature of a Wall Street bank’s relationship to its clients and counterparties. Greece had a problem it wanted to solve, and it turned to Goldman Sachs to solve it, just as millions of other clients and counterparties have turned to Goldman and other Wall Street firms to help solve a myriad of financial problems. Greece and Goldman agreed to a deal. No one was forced into the agreement, and to claim that somehow Goldman snookered the Greek finance minister is unfair and condescending. Would Reich ever think for a moment that Goldman Sachs could snooker him? Not likely.