Europe Probing Goldman Sachs on Sovereign Credit Default Swaps

YES! Bloomberg is reporting 16 banks, including Goldman Sachs are being probed by the EU for anti-trust for manipulation of the the financial derivative, credit default swaps, market.

Goldman Sachs Group Inc., JPMorgan Chase & Co. and 14 other investment banks face European Union antitrust probes into credit-default swaps for companies and sovereign debt.

The EU is investigating whether 16 banks, including Citigroup Inc. and Deutsche Bank AG, colluded by giving market information to Markit Group Ltd., a data provider majority-owned by Wall Street’s largest banks. It will also examine if nine of the firms struck unfair deals with Intercontinental Exchange Inc.’s European derivatives clearinghouse, shutting out rivals.

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” Joaquin Almunia, the EU’s competition commissioner, said in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”

Global regulators have sought to toughen regulation of the $583 trillion credit-default swaps market, saying the trades helped fuel the financial crisis. The EU’s probes add to separate investigations in the U.K. and U.S. into whether banks colluded to manipulate the London interbank offered rate.

Credit default swaps allow anyone, not directly involved in the underlying asset, to place bets on whether that underlying security, asset will default or not. Credit default swaps are used for speculation. In the case of sovereign debt, that causes the cost of financing that debt to increase, dramatically.

AFP:

The investigation focuses on Credit Default Swaps (CDS), derivative financial products traded between financial institutions or investors originally meant to protect investors in the event a company or state they have invested in defaults on payments, but also used today in speculative investment portfolios.

These products have helped push up yields when trading government bonds issued by Greece and other struggling European states.

The antitrust probe comes amid slow-moving work on legislation by European Union financial services commissioner Michel Barnier aimed at curbing leeway for the main players in a lucrative and hugely influential market.

CDS derivatives have become for some a symbol of reckless speculation in the wake of the eurozone sovereign debt crisis that first hit home in Greece and has since sucked in both Ireland and Portugal.

The question is whether these 16 banks are controlling this $600 trillion derivatives market, which beyond anti-trust, literally gives them the power to break a nation, through sovereign default.

See this post to show how credit ratings agencies downgrade a nation, then the spread of credit defaults swaps increases....and someone, makes a whole lotta money.

The New York Times:

Sixteen of the banks are shareholders in Markit, a London-based organization that is the leading provider information on the market for credit default swaps. European Union officials suspect that the banks’ arrangements with Markit could effectively lock out other data providers.

Nine of the banks involved also have a financial relationship with the IntercontinentalExchange, a public company that owns ICE Clear Europe and ICE Clear U.S. That company is involved in a new business area known as clearing — which regulators are promoting as a way to bring more safety to the derivatives market. The banks had been creating their own effort to clear derivatives through a company they owned called the Clearing Corporation. In 2008, they sold that company to ICE, which was developing its own business. In exchange, ICE allowed the banks to influence the way the clearing business was set up and also granted them multiyear price breaks on clearing fees.

Critics say the banks worked with ICE to create rules and practices that were anticompetitive, like membership rules that for a while blocked other brokers from signing up to do business there.

In other words, a rigged game that can bring a nation to it's knees.

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I honest wish that the EC

I honest wish that the EC would nail them and put them out of business. these are corrupt enterprises that have ruined millions of lives

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