Fed vindicates Goldman over Greek trades

A FEDERAL Reserve investigation into contracts between Goldman Sachs and the Greek government ended yesterday without any action being taken.

The probe, launched by the Fed, alleged that the contracts distorted the country’s debt levels.

Fed chairman Ben Bernanke told Congress yesterday the investment banking giant did sell Greece products that lowered its debt-to-GDP ratio in 2000 and 2001 but that it happened before the Enron crisis when rules against accounting-related transactions were set up.

He said Goldman Sachs now has the policies and procedures in place to make sure that trades are not motivated by accounting.

He said: “We believe that the situation is well under control.”

Goldman Sachs dropped its estimated share price for a handful of Greek lending banks by as much as 18 per cent, after it said that operating environments continue to deteriorate.

The news comes as uncertainty over the Greek economy mounted after a leading German economist threatened to take legal action against the proposed bailout package.

Joachim Starbatty, a university professor and economist said yesterday the bailout package breached the European Union’s Maastricht Treaty and that he was planning to launch a court challenge.

Starbatty said the loans would violate the treaty on monetary union and would constitute an illegal subsidy and that Greece should voluntarily exit the 16-nation euro region.

It is understood that Starbatty and a group of fellow professors will file a lawsuit with Germany’s Constitutional Court.

The German government suggested the bailout package would have to be endorsed by parliament.