Wednesday, February 10, 2010

Crux of the Crisis: Did Goldman Have Incentive to Push AIG/Mortgage Securities Into Failure????

Gretchen Morgenson and Louise Story of The New York Times have an outstanding story on the relationship between Goldman Sachs and AIG just prior to and during the economic crisis.  The story seems to imply that Goldman Sachs attempted to sabotage AIG by pressuring them for insurance payments, threatening to expose information about weaker parts of their balance sheet to the market, and even asking other of AIG's counter-parties to pressure AIG for mortgage securities insurance payments.

Here are some of the major facts I gleaned from the article:
1. Goldman Sachs strongly resisted consulting 3rd parties to help estimate the value of the securities which were in dispute between Goldman and AIG.
2. Taxpayer assistance to AIG is currently totaling $180billion.
3. Although other banks gained from AIG's bailout, Goldman received more taxpayer dollars than any other of AIG's creditors (other banks) at $12.9 billion.
4. A portion of the $11billion French bank Societe Generale received was subsequently given to Goldman under a deal both had agreed on.
5. Goldman Sachs had huge bets against the mortgage market, when the mortgage market went bad, Goldman largely benefitted from it.
6.  Some AIG insiders were upset about Goldman Sach's valuations of the insurance on packaged (bundled) mortgage securities, quoting from Morgenson and Louise Story's reporting: “Would we call bond issuers and ask them what the valuation of their bonds was and take that?” asked Robert Lewis, A.I.G.’s chief risk officer, in a message in January 2008. “What am I missing here, so I don’t waste everybody’s time?”
7.  After paying $180billion to AIG, the Securities and Exchange Commission(SEC) and Congress is asking question about the possibility that Goldman gave them more than a little nudge to send AIG over the cliff.

Read the details of Gretchen Morgenson's and Louse Story's terrific reporting here.

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