In a deal that barely registered with the mainstream media, Ecuador's central bank agreed earlier this week to swap half of its gold reserves – worth $580 million – with Goldman in exchange for liquid assets.
The Ecuadorian central bank thinks it's going to earn $16 million to $20 million in profit over the three-year duration of the deal. Of course, the details of the transaction, such as the fees and interest rate that Goldman is charging, were not disclosed.
And as we all know, the devil is in the details – particularly when you're dealing with a Wall Street pirate like Goldman Sachs.
"They've invited the wolf to dinner without realizing they're on the menu," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "There's no doubt that Goldman will come out the winner. We just don't know exactly how they plan to do it."
Goldman Sidesteps Washington… Again
Fitz-Gerald said that the Ecuador gold deal matters because it's telling us that Goldman and its nefarious brethren on Wall Street have not changed their behavior one iota in the wake of the 2008 financial crisis for which they were mostly to blame.
What's more, he said that U.S. politicians who believe that efforts like the 2010 Dodd-Frank Act have put a lid on Wall Street's bad behavior are dreaming.
"Washington thinks they have this thing under control," Fitz-Gerald said. "All they've done is just a slap on the wrist. The Big Banks have just reconstituted their business elsewhere, where they don't have the same regulatory burden. If you think anything has changed in New York, you're sadly mistaken."
And whatever Ecuador is saying publicly, that it was willing to make any kind of deal with the likes of Goldman Sachs indicates that the country is in serious trouble.
That much is obvious to everyone.
"It does raise a red flag," Bianca Taylor, a sovereign analyst at Loomis Sayles, told Bloomberg News. "Whenever a country needs to sell or monetize its gold reserves, it's definitely a signal that the sovereign is strapped for cash."
Maybe Ecuador genuinely believes that swapping its gold with a shark like Goldman will work out for the best, but history says otherwise…
The Damning Track Record of Goldman Sachs (NYSE: GS)
One thing that anyone should know entering into a deal with Goldman Sachs is that they will come out on the short end. Goldman plays to win.
And it's more than willing to bend the rules in its favor. Just look at what Goldman did last spring…