Posted on 11/24/2009 4:54:08 PM PST by Brugmansian
As we have been reading the latest coverage on the AIG bailout from the SIGTARP report and the Treasury Secretary Geithner’s Congressional testimony, a nagging question remains unresolved: why did AIG get bailed out but the monoline bond insurers did not? . . .
I hate to get sucked into the vampire squid line of thinking about Goldman, but the only explanation i can think of for why AIG got rescued and the monolines did not is because Goldman had significant exposure to AIG and did not have exposure to the monolines.
When it became clear that AIG could face bankruptcy, Goldman’s plan to profit by shorting ABS CDOs was threatened . . . This was a real crisis for Goldman – they thought they had outsmarted the subprime market with their ABS CDOs and outsmarted all of the other banks by getting collateral posting from AIG when they got downgraded. But if AIG went away, this strategy would have blown up and cost Goldman billions.
All of this is essentially factual and based, for the most part, on public information.
As a matter of speculation, i believe that Goldman and their helpers deliberately pumped up the media with the threats that the subprime market posed in order to hasten the collapse of the subprime market. this allowed them to realize their gains sooner from shorting ABS CDOs – they had become impatient waiting for it to blow up.
In addition, I believe that Goldman and their helpers – including their many connections with the White House and the Fed – pumped up concerns about the systemic risk that the market was facing from a Lehman and AIG failure, so that they could force the government to step in and bail out AIG . . .
(Excerpt) Read more at nakedcapitalism.com ...
Document it and you’ve got a book.
If you live to publish it.
If they had collateral from AIG, how would they lose if AIG went away?
Who is gonna prosecute them? Holder?
They OWN this administration ;-)
The ‘collateral’ here is something different. It does not refer to assets backing up a loan, but to the “hedge” that they had obtained by getting insurance from AIG.
I thought it was assets to back up AIG's losing trades?
Hang ‘em High!
If they had collateral from a group that was totally insolvent?
sERISLY, that is your idea of collateral?
You see, if their trades dropped in value today, they had to send Goldman money tomorrow. You do that for 8 or 9 months and Goldman has a pretty big chunk of change.
sERISLY, that is your idea of collateral?
Yes, money in my hand is my idea of collateral.
As I understand it, and I may be incorrect, the collateral was in the form of insurance which AIG would not be able to pay off if it went bust. AIG took bets it could never pay and GS made those bets, in my opinion, knowing full well AIG could never pay. The idea was the bets made the products GS was pitching more salable and GS knew, as a last resort, it could go to the Feds and have its bets made good by taxpayers (and yes, this was a bipartisan issue. It happened under Bush but did get worse under Obama).
All dependent on if the US Treasury would cover for AIG, 100 pennies on the dollar, RIGHT?
Of course if the Goldmans knew in advance that would be the case then collateral it was without doubt.
I guess you know best.
No, they had the insurance policy and had to trade collateral when the underlying securities went up or down. On a daily or maybe weekly basis.
AIG took bets it could never pay and GS made those bets, in my opinion, knowing full well AIG could never pay.
I suspect you are incorrect.
Whatever collateral Goldman held was that much less money they needed from AIG. That much less that they'd lose if AIG went away.
Of course if the Goldmans knew in advance
Knew what? That they held billions in collateral?
Ok you are persistent and I admire that. What was the AIG colatteral that Goldman held, that was not first owed to the owners of AIG insurance contracts? Did it really work that way? And if that is the case why the heck was AIG called an insurance company and why would Goldman sell their clients such a nothing burger?
No, an insurance policy (basically a bet by GS that the subprime mortgages would bomb), used as a hedge to offset their investments in toxic assets. You can think of it as a kind of collateral asset re packaged mortgage loans, but there was no hard asset other than our dollars in the US Treasury, if GS and Schumer et al could convince Geithner to use them to save AIG and thence GS.
Probably bonds. Probably Treasuries.
that was not first owed to the owners of AIG insurance contracts?
I'm guessing if they handed Goldman stuff that they owed to someone else, we'd already have heard about criminal charges.
And if that is the case why the heck was AIG called an insurance company
Maybe a non-insurance division did it? I think AIG had a bunch of separate divisions.
why would Goldman sell their clients such a nothing burger?
What are you talking about?
Yes, that was the bet Goldman made. And when they were right, AIG had to give them money or some other collateral as the securities went down in value. It wasn't like, we made $5 billion so far, don't worry about it. The terms of the contract said they had to exchange collateral when the value of the bet changed. Frequently.
You can think of it as a kind of collateral asset
If by kind of collateral you meant actual collateral in Goldman's hands, you're right.
but there was no hard asset other than
Other than the collateral AIG kept sending to Goldman as the market moved.
Thank you. That is what I thought. Then Toddster jumped in saying no...no...but gave no answer to what the collateral was. All it was was a bet. A bet, as I mentioned, I'm confident both AIG and GS knew could never, ever be paid off if called.
Am I under a false impression that Goldman sold CDS backed by AIG to Deuschebank, Credit Francais, etc, etc, etc, and so forth and so on?
You thought wrong.
After shelling out billions of dollars to Wall Street banks last year on souring trades, American International Group Inc. has gotten some of that money back, thanks to a turnaround in the very securities that helped level the insurer.
Billions of dollars have flowed from banks into AIG coffers in recent months, according to people familiar with the matter. For the second quarter, the figure may have topped $3 billion, public filings suggest. Goldman Sachs Group Inc. has sent back at least about $1 billion, said people familiar with the matter....
The cash that AIG is getting back from Wall Street is tied to credit-default swaps, which act as insurance policies on securities backed by assets such as mortgages and pay off in case of default. AIG sold these swaps to Wall Street banks. Under these contracts, it was required to pony up collateral if the investments they backed fell in value. When the credit crisis hit, AIG had to fork over billions of dollars to the banks, draining it of cash and helping to push it to the brink of a bankruptcy filing.
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