Skip to comments.A New Enemy for Goldman Sachs
Posted on 01/10/2010 4:04:32 AM PST by FromLori
Former AIG chairman Hank Greenberg is not an uniased observer of events surrounding AIG. However, in a Holman Jenkins interview, he makes some interesting points and raises some interesting questions about the events surrounding Goldman Sachs getting paid 100 cents on the dollar. Greenberg portrays Goldman's role as sinister as you can get :
Goldman Sachs has a new enemyas if it needed another one.
Hank Greenberg, as we sit in his Park Avenue office, is telling me how to do my job, saying reporters need to get to the bottom of the events that preceded and followed the government bailout of AIG, the insurance company he built into a global giant.
In particular, they need to get to the bottom of the part played by the investment bank of Goldman Sachs. He waves a sheaf of press reports from the New York Times, Washington Post and McClatchy papers about the firm's doings before and during the subprime meltdown. "We're dealing with a jigsaw puzzle where all the pieces are not in the box. Bit by bit, we're getting the pieces. The pieces are failing into place and the picture on the face of the puzzle is not a pretty picture."
Let me get this straight. Is Mr. Greenberg saying the machinations of Goldman Sachs were responsible for the disastrous failure of AIG amid the recent financial crisis? "Well, it certainly wouldn't be difficult to come to that conclusion."...
How did it all come apart so quickly [for AIG]? Here are the pieces Mr. Greenberg says he sees falling into place. In 2005, a trade group called the International Swaps and Derivatives Association got together and drafted new standards for the kinds of credit default swaps AIG had been writing.
Previously, Mr. Greenberg explains, losses to the underlying securities were paid off at maturity. Now, cash payments would have to be forthcoming to cover any drop in value or credit downgrades even before any losses were realized.
"I don't know whether Goldman Sachs was the force behind the ISDA change or Deutsche Bank," Mr. Greenberg concedes. "That's something investigative reporters are going to have to spend time digging out."
The next piece fell into place, he says, with recent reports in the press about how, at the top of the housing bubble, "a couple of people there [at Goldman Sachs], bright guys, decide the housing market is going to collapse." Goldman went to work creating new subprime housing-backed derivatives , Mr. Greenberg says, and "began marketing the hell out of them and at the same time shorting them" (or betting they would fall in value).
Bingo. When the housing boom imploded, Goldman demanded giant cash collateral payments from AIG on a "mark to market" basis for housing-backed securities whose price was plummeting even if the underlying payment streams were intact. True, Goldman was hardly the only one demanding cash, but Mr. Greenberg is suspicious about the size of the payments Goldman demanded based on Goldman's own "marks" (i.e. estimate of the securities now-depressed value). "Goldman had the lowest marks on the Street by everything I hear," he says. "There was no exchange. Where was the price discovery? It was all in the eye of the beholder."
In short, it added up to a perfect trap for AIG. As panic spread through the financial sector, impossible amounts of cash were required of the firm under insurance contracts that had years to run and (as Mr. Greenberg argues and events seem to be showing) would likely end up performing adequately in the long run.
But this is just half the puzzle, he says. When the government took over AIG, why did it insist that Goldman and other firms receive 100 cents on the dollar on their AIG exposure, while the terms of AIG's own bailout were so onerous as to force the firm into slow-motion liquidation? When the government's bailouts of Citigroup, Bank of America, GM and Chrysler were clearly designed to restore the firms to health, why was AIG's apparently designed to create a wasting asset that would wither and die in taxpayer hands? Most of all, he cannot fathom why Treasury and the Federal Reserve let billions of dollars in taxpayer cash fly out the backdoor to Goldman and other firms. Washington could simply have ordained that AIG's debts were the government's debts and so no collateral was due give Uncle Sam's bulletproof credit rating. Mr. Greenberg has no doubt the destruction of AIG was the politically-dictated goal at the time. He points to Treasury Secretary Hank Paulson's statement on Sunday morning television shortly after the rescue, saying the purpose was to "allow the government to liquidate" the company.
Mr. Greenberg invokes the loaded constitutional word "takings" for the government's seizure of a 79.9% stake in AIG as part of the package dictated to the company's board. "They just took the goddamn thing. What's the basis for taking it? You gotta explain, How did you get to 79.9%? I'd be curious to know." Read the full interview here
The pot calling the kettle black.
Here’s a hell of an article from Catherine Austin Fitts about Goldman and the creature known as The Vampire Squid.
I don't disagree that this article MAY be accurate, but, at this point, it all depends on the credibility of the author...and I can't seem to find a bio on this guy.
The actual Journal article title is
"Can AIG Be Saved?"BTW, should this post be in "bloggers and personal" the way it is posted.
-- The former chairman wonders why Goldman Sachs got paid in full on its AIG exposure while AIG itself was forced into slow-motion liquidation).
Goldman sold financial instruments they knew were overvalued, changed the terms of their collateralization in midstream, then shorted the $hit out of what they were selling. Meanwhile, back at the White House, Paulson made sure that
one of Goldman’s biggest competitors, Lehman Bros. was allowed to fail.....Advantage, Goldman Sachs. Nice home run.
We post the market ticker here, zero hedge here and many other similar sites.
You should research him you would be surprised at who he is.
I googled him but couldn’t find a bio. I will try again.
...instead of bitching about Goldman Sachs some of these guys need to put shares of GS in their portfolio...why let self righteous indignation get in the way of making money?
Goldman Sachs always has clout in Washington, as evidenced by the firms alumni serving as Treasury secretaries under both Presidents Bush and Clinton. Today, in these tumultuous times of bailouts and meltdowns when the investment banking leviathan needs Washington more than ever before, Goldman can leverage its most valuable asset yetincoming White House chief of staff Rahm Emanuel. Goldman Sachs is the giant of Wall Street, and more than any other investment bank, Goldman is surviving the current financial storm.
Traditionally a Democratic booster, and one of Barack Obamas top sources of funds in this past election, Goldman has always had some particularly strong allies within government. Emanuel is one such ally. An interesting early chapter in the Goldman-Emanuel relationship took place in the setting of Bill Clintons campaign for the White House in 1992. Clinton hired Emanuel as his chief fundraiser.
At the same time, however, Emanuel was on the payroll of Goldman Sachs, receiving $3,000 per month from the firm to introduce us to people, in the words of one Goldman partner at the time. This is certainly a noteworthy relationship, but its one that has almost entirely escaped scrutiny. (snip)
In his four terms in Congress, Emanuel has raised $74,750 from Goldman, making the firm his number four source of funds. Goldman has helped Emanuel. How has Emanuel helped Goldman? The most obvious answer, as mentioned in this column two weeks ago, is in Emanuels lead role in shepherding the $700 billion bailoutfirst proposed by former a Goldman CEO, Bush Treasury Secretary Henry Paulsonthrough the skeptical House.
Of course, back in the Clinton days, Goldman benefited from NAFTA and the bailout of the Mexican currency, with Emanuel pushing NAFTA through Congress, and Rubin hammering out the peso bailout. Did Goldman improperly funnel money to the Clinton campaign by subsidizing Emanuels salary in 1992? Did Goldmans help to Clinton spur the Democratic president to push NAFTA and the Mexican bailout?
The answers to these questions are opaque, and with Emanuel burrowed deep within the Obama White House, the continued relationship between Goldman Sachs and Obamas right hand man wont be easy to follow.
Watch which regulations of Wall Street Obama fights for. Watch where the bailout money goes. And dont be surprised Goldman soon sitting pretty once again.
THINGS WE DO NOT KNOW ABOUT RAHM Did Wall Street Rahm reveal all of his ties to financial institutions involved in Obama's trillion dollar federal bailout of financials.......like Goldman Sachs, for instance?
Thanks for the headsup.
The full article, and interview, was done by one Holman W. Jenkins, Jr.
That whole meltdown was orchestrated to make GS and the gummit control the banking industry. There were some powerful people behind it.
Pray for AMerica’s Freedom
I don’t know if that would be too wise lol govt. sucks is being sued from a few different places.
Goldman Sachs will be preserved and will be prosperous because they are willing to make heavy contributions to politicians of BOTH parties. Clinton’s Treasury Sec,a GS heavy for many years, has given and raised tremendous amounts of money for Clinton and other Democrats. GS knows how to sell our debt and is an important “franchisee”. Where would we be if we couldn’t sell US bills and bonds. Until the time comes when Obama, the People’s Liberation Army, Soros, and OPEC, and the like drive us into insolvency, Goldman Sachs will have no worries.
Fed bought 80% of our debt last year so much for govt. sucks