The whole premise - that AIG’s assets were worthless and thus any price paid for its securities was theft - is so factually inaccurate that only someone with zero understanding of credit default swaps and the specific instruments that brought down AIG could have written something so incomplete to the point of deception.
Virtually all of AIG’s credit default swaps ended up being insanely profitable. The problem was that, unlike the much wiser Warren Buffett at Berkshire Hathaway, the small group of men and women that sold these products allowed counter parties on all derivatives to demand cash collateral in the event of a downgrade or movement in the asset tied to the derivative.
As the market melted down, this small division of AIG, which was then and remains one of the most profitable businesses in the history of the world, found itself in the position of being forced to come up with first $20 billion and later $60 to $80 billion in cash collateral for what amounted to “escrow” accounts to be kept in the event the underlying companies they had “insured” went bankrupt. Of course, most of these companies didn’t go bust and so nearly all of the CDS didn’t’ have to pay out a dime.
Imagine someone showed up at your house and demanded every penny you ever owed - your mortgage, car payments, student loans, credit cards, etc. - all due and payable within 18 hours. No matter how successful your job, how much real estate you owned, the value of your art collection, or your pedigree, you’re going to go bankrupt.
Goldman Sachs, and the other parties that stepped in to buy the assets, made an insane amount of money on the deal BECAUSE the AIG assets were being given away for free. All of this could have been avoided if the Federal Government had merely issued a single “Letter of Credit” to the counter parties on the derivatives, protecting them from losses. AIG shareholders would have remained almost unscathed, the collateral damage to the economy wouldn’t have happened, and tax payers wouldn’t have actually had to come up with any cash. The mere temporary support would have given the system enough time to work out satisfactorily for everyone involved.
In other words, AIG had a liquidity problem caused by collateral requirements on assets that ultimately ended up profitable.
To state that the people who stepped in to the situation were thieves and there should be an investigation, when in fact they were being pure capitalist taking advantage of a weak competitor, is utterly and completely absurd. Every stockholder of Goldman Sachs should thank God that while the idiots in Detroit drove the automakers into the ground, Wachovia catered on the brink of destruction, and while Freddie Mae and Fannie Mac threatened to blow the country’s economy out of the water, the management team that they had elected to run the daily operations at Goldman were doing their job, doing it well, and making them INSANELY rich.
Anyone who doesn’t understand the mechanics of these securities and the pricing that was ultimately put in place shouldn’t criticize the details of the deal; it would be like a kindergarten teacher passing critical judgment on the technique of a neurosurgeon.
In a world of ineptitude, Goldman has proven to be shrewd, rewarding its owners day after day. Why not stop whining about it and buy shares in the company since you seem to be convinced they can’t lose?
“All of this could have been avoided if the Federal Government had merely issued a single “Letter of Credit” to the counter parties on the derivatives, protecting them from losses. AIG shareholders would have remained almost unscathed, the collateral damage to the economy wouldn’t have happened, and tax payers wouldn’t have actually had to come up with any cash.”
So what would have happened to that office in London? Would they simply have continued, or are they still in business today?
“...the small group of men and women that sold these products allowed counter parties on all derivatives to demand cash collateral in the event of a downgrade or movement in the asset tied to the derivative.”
Why?