Carolyn Maloney (D-NY) sent on Friday a letter asking for hearings to be held on U.S. financial firms’ involvement in the elements of the debt crisis currently facing Greece.
“News has surfaced that investment banks based in the United States have funded firms that created the financial indexes and other information needed to trade against the possibility of a sovereign default overseas—after selling debt to those countries in a way that kept that debt secret from the public,” Rep. Maloney said. “These reports, if true, are a shocking echo of the financial crisis that faced the U.S. in 2008—whose reverberations are still being felt today, in the worst recession in decades.”
The text of the letter follows:
Dear Chairman Frank,
I am writing to respectfully request that the Financial Services Committee hold a hearing on U.S. financial firms’ involvement in the elements of the debt crisis currently facing Greece. Today’s New York Times reports that the growing trouble in Greece is being exacerbated by financial institutions which are trading derivatives on the likelihood of a sovereign default. I believe a hearing is timely and important for the committee to ensure proper oversight and to investigate whether or not additional actions may be appropriate.
Today’s report follows on the heels of news in recent weeks that many of these same firms sold debt to Greece in a way which shrouded that debt, keeping it secret from the public. By trading on the likelihood of defaulting on that secret debt, it creates the perception that financial institutions could benefit again by Greece’s default on that debt. As one analyst was quoted today, “It’s like buying fire insurance on your neighbor’s house—you create an incentive to burn down the house.” The increase in demand for insurance on government debt through credit default swaps harkens back to the activities that brought down American International Group.
Today Federal Reserve Chairman Bernanke announced that the Fed would be looking into the derivative transactions that U.S. banks entered into with Greece noting that it is “counterproductive” to use derivative transactions in a way that destabilizes a country. The Financial Services Committee should investigate this issue and learn what remedies may be required. I look forward to working with you on this going forward.
(Source: Sae, Greek News)