The steady stream of revelations regarding the role Goldman Sachs [3] has played in the fleecing of Europe should reinvigorate efforts in Congress to rein in the reckless trading that could send the global economy into another tailspin.

To recap, Greece and a number of other European Union countries are dangerously in debt. EU rules say member countries cannot have budget deficits that exceed 3 percent of their gross domestic product (GDP). The Greek government recently revealed that its debt is closer to 12 percent of GDP. Other countries including Spain, Ireland, Italy and Portugal are also in trouble. Like our behemoth banks, these countries are “too big to fail.” A default by any one of them would put an end to talks of “green shoots” and could lead to a double dip recession.

In early February, the German magazine Der Spiegel broke the story that Greece has been hiding the extent of its debt for years, with the aid of U.S. investment banks. In 2001, Goldman was paid $300 million to structure a complex derivative deal that allowed Greece to borrow billions while hiding the true extent of its debt. Without this creative assistance, Greece may not have been accepted into the common currency “Eurozone.”

Because the deal was structured as a currency swap (a type of derivative) and not as a loan, it was secret, bilateral and off-book. Goldman may have been the only party that knew about it, leading many to speculate how it may have profited from the knowledge.

Last week, the other shoe dropped. The New York Times reported that a company backed by Goldman, JP Morgan Chase [4] and other big banks had set up an index in London that allows investors to gamble on the likelihood of a Greek default. As banks and other players rush into these trades -- called credit default swaps -- they make the cost of insuring Greek debt rise, making it harder for the country to borrow and bringing it closer to the brink.

Sound familiar? In 2002, the same firm created a similar index that allowed investors to bet on the likelihood of defaults in the subprime bond market. The “savvy” investors at Goldman made a fortune off the collapse of the market. It’s a sure bet that they will do so again if Greece goes down.

Recent revelations about the extent to which Goldman sold toxic mortgage-backed securities to its clients while betting against those securities in the market prompted Phil Angelides, chair of the Financial Crisis Inquiry Commission [5], to suggest that this business model was “like selling a car with bad brakes and then taking out an insurance policy on the driver.”

Federal Reserve [6] Chair Ben Bernanke [7] told Congress that the government was looking into Wall Street’s use of credit default swaps to bet on a Greek collapse. “Using these instruments in a way that potentially destabilizes a company or a country is counterproductive,” Bernanke said. But the Fed has advocated a light hand in regulating derivatives and has fought to keep currency swaps exempt from reform bills.

With some predicting a major economic shock if the EU’s debt crisis is not resolved promptly, this business model is worse than “counterproductive” -- it is cataclysmic.

This week the U.S. Senate is turning its attention to bank reform. Congressional reform plans for derivatives trading are full of loopholes. Go to BanksterUSA.org to send a message or find a toll-free number to tell your members of Congress where you stand. All derivatives should be traded on an open exchange. Derivatives that act like insurance should be regulated like insurance and abusive derivatives should be banned. Without strong new rules on these weapons of mass destruction, another derivative-fueled financial crisis is certain.

First printed in Madison's Capital Times newspaper.