The real story not told by the scary headlines about Wall Street "hiding" Sovereign debt to help borrowers to report legally but not truthfully is how ignorant the various regulatory authorities are about modern financial tools.
The first layer story is about Wall Street designing derivative products that allow borrowers, including governments around the world, to legally report less than what it should.
Sovereign can legally make its debts "go away" because there are insufficient reporting requirements with respect to derivatives. Contingent liabilities appear to belong in a parallel and uncharted universe.
So, should we be upset now to realize Greece, among others, is in far more serious indebtedness than we knew of? That there is now at a minimum a meaningful risk that some major financial blowout may happen? We thought we had seen the worst, yes? So, whom should we blame?
We cannot really blame Wall Street since it had done nothing illegal, right?
So, do we blame government officials?
Well, not quite, since they are not as qualified and smart as those who run around them in circles, namely, their former smarter classmates who went on to work on Wall Street to maximize their incomes and wealth while the more publicly spirited blokes went on to work for the government, namely, to become "public servants" of you and me. We cannot realistically blame people for being dumb. They are what they are. Besides public servants are downright "cheap" compared to what their bankers receive as wages or bonuses.
Perhaps we should blame ourselves. We don't want to pay taxes but we expect public servants to be as savvy as Wall Street bankers. More than that, my recent postings tried to show, we, the taxpayers, expect free lunches wanting the government to foot all kinds of bills, but we pay the officials a pittance.
In Singapore, public servants are paid as well as most senior private sector jobs. And if they are then caught with a greasy palm, they end in a long jail sentence.
In the United States Senators, Congressmen can be "bought" with a pittance by lobbyists. When the government was deep in ideological navel gazing, as in the last Bush Administration, not even smart public servants dared to take a harsh look at funny business on Wall Street let alone propose new regulations to enforce more transparent reporting.
So, while the world is horrified by what Greece had managed to get away with hiding its debts with the help of, yes you guess it, Goldman Sachs, let's think about the deeper problem of how to regulate Wall Street without strangling it.
The full report of how Goldman Sachs helped Greece is here.