US Fed examines Goldman deals in Greece

The US Federal Reserve is reviewing the role of Goldman Sachs and other firms to helped Greece hide its debt problems, chairman Ben Bernanke said Thursday.

Bernanke said the central bank was examining Wall Street firms' transactions with Greek authorities that could have exacerbated Greece's fiscal woes.

"We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," said Bernanke, in response to a lawmaker's question during testimony to Congress.

Greece's troubled finances are already under close scrutiny by European Union regulators amid fears that its problems could spread to other members of the 16-nation eurozone.

Greece's total debt, estimated at 300 billion euros (404.6 billion dollars), or 113 percent of gross domestic product, is nearly double the 60 percent eurozone limit, while its public deficit at 12.7 percent of GDP is more than four times the maximum level under eurozone rules.

The Greek authorities also have come under fire over a currency swap arranged with Goldman Sachs that allegedly enabled Athens to mask debt almost a decade ago as the country joined the eurozone.

Bernanke, wrapping up two-day report on monetary policy, was asked by Senator Christopher Dodd whether Bernanke believed there should be limits on the use of credit default swaps (CDS) to prevent the intentional creation of runs against governments.

Dodd, chairman of the Senate Banking Committee, noted that banks and hedge funds are reportedly using credit default swaps -- a sophisticated instrument that provides insurance against defaults -- "to bet that Greece will default on its debt."

Dodd said those bets were making it more difficult for the crisis-hit Greek government to borrow critically needed money.

"Since there is no requirement that purchasers of credit default swaps actually own any of the underlying debt, we have a situation in which major financial institutions are amplifying a public crisis for what would appear to be for private gain," he said.

Bernanke said the Fed was looking into "this issue as well," noting that CDS "are properly used as hedging instruments."

But, the Fed chief said, "obviously, using these instruments in a way that intentionally destabilizes a company or a country is -- is counterproductive."

Bernanke said he was "sure" the financial markets watchdog, the Securities and Exchange Commission (SEC), would be looking into that.

"We'll certainly be evaluating what we can learn from the activities of the holding companies that we supervise here in the US," he added.

Dodd said he was formally asking the Fed and the SEC to report back "very quickly" on the matter, "a critical issue for all of us."

The SEC, contacted by AFP, declined to say whether there was an investigation of Goldman Sachs underway.

SEC spokesman John Nester said: "We have been examining potential abuses and destabilizing effects related to the use of credit default swaps and other opaque financial products and practices."

Douglas McIntyre at 24/7WallSt.com said Goldman Sachs helped Greece defer but not eliminate its day of reckoning.

"Goldman?s argument will be, as it usually is, that is was the only company smart enough to help Greece with its debt problems but it is not at fault in the matter of the deception," he said. "It supplied the gun, but did not pull the trigger."