Binge then bust

Politicians have recently expressed alarm at a cross-currency swap conducted between Greece and Goldman Sachs in 2001, which allowed the sovereign to reduce the debt it reported in its public accounts. But other examples now coming to light show the apparent misuse of derivatives by sovereigns and local governments is far from rare. Duncan Wood reports

Latvia's auditor-general, Inguna Sudraba, doesn’t mince her words: “This wasn’t some advanced financial instrument. It was an attempt to treat everyone else as though they don’t understand reality.”

Sudraba is talking about a 567 million lati ($1.086 billion) financing arranged for Riga by Deutsche Bank in June 2005, so the city could build the Southern Bridge that today spans the Daugava River. The Latvian government had declined to let Riga borrow that kind of money, but the city refused to