Credit-Default Hypocrites

How Wall Street is gaming the Greek bailout.

By Eliot Spitzer  |  Posted Monday, March 5, 2012, at 2:39 PM ET

A funny thing happened on the way to the Greek bailout: Credit-default swaps involving Greek debt—the same kind of financial instruments that triggered the 2008 fiscal cataclysm—were set aside, once again protecting big financial institutions from their own irresponsibility.

As the negotiations over the write-down of Greek debt unfolded, one of the critical questions that seemed to be hovering over the markets was: Who bought credit-default swaps on Greek debt, and who would owe big sums to cover the CDS obligations if there were a default. Remember that back in the housing crisis of 2008, it was largely the inability of AIG to make payment on the credit-default swaps it had sold that triggered the cascade of incipient failures that required enormous government intervention. Remember the $182 billion investment taxpayers made in AIG—$12.9 billion of which went straight to Goldman Sachs?