Lies, Con Games and Greek Structured Finance

by Jonathan Weil

Bloomberg
July 7, 2011

Structured finance helped turn Greece into a disaster zone. It seems only natural that Greece would look to structured finance once again to buy time.

The spark that accelerated Greece’s debt crisis early last year was the revelation that Greek authorities had used some fancy derivative trades a decade ago to mask the true size of the country’s debt. Today it’s Greece’s creditors who are dreaming up the wacky financial engineering, in hopes that the European Union can keep pretending the nation isn’t bankrupt.

The term structured finance is simple to define, in spite of the images of complexity it often evokes. It is the art of making a transaction seem like something it isn’t, usually to achieve some desired financial-reporting or tax result.

For example, when a publicly owned company needs cash but doesn’t want to show more debt on its balance sheet, there’s a good chance it can borrow the money and design the deal to look like equity, even though in substance it’s a loan. Similarly, Greece would like to find a way to pay its creditors less money than it owes, while creating the appearance, in form, that it is repaying them in full.

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