Tuesday, May 31, 2011

Barbary Coast: What Happened When Libya Invested With Goldman Sachs


Today's Wall Street Journal had a long story about Libya's sovereign investment fund's misadventures in currency trading with Goldman Sachs during the fateful year of 2008. The Libyans invested $1.3 billion with Goldman and lost 98% of their investment. Then, after losing a fortune, GS tried to make up for it by offering the Mad Dog a sizable stake in the Vampire Squid. Who needs the CIA to undermine our enemies?

In early 2008, Libya's sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman Sachs Group to sink into a currency bet and other complicated trades. The investments lost 98% of their value, internal Goldman documents show.

What happened next may be one of the most peculiar footnotes to the global financial crisis. In an effort to make up for the losses, Goldman offered Libya the chance to become one of its biggest shareholders, according to documents and people familiar with the matter.

Apparently the poor GS executives who had to deliver the bad news to the Qadaffis needed an escort to the airport in order to leave Tripoli alive. Hey, you guys wanted to be big shot wizards of finance, right?

More seriously, I think this story, and a million more like it that haven't yet been told, gives you a real sense of the insanity that drove the Crash of '08. I mean, how do you "lose" 98% of a billion dollar investment? But that was the thing back then. Some of the world' wealthiest and sophisticated investors were throwing billions of dollars into a black hole. And the people running the black holes - those would be Lehman Bros, Goldman, et al. - were traveling the world looking for further billions. Not only that, they were contemplating going into business with a government that just a few years earlier had been caught developing nuclear weapons.

The history of Wall Street is filled with roguish characters, but a financial alliance with a man who once demarcated a "line of death" in the Mediterranean would seem to be too much, even for Goldman.


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