Posted on 02/06/2010 10:04:47 PM PST by Cheap_Hessian
Billions of dollars were at stake when 21 executives of Goldman Sachs and the American International Group convened a conference call on Jan. 28, 2008, to try to resolve a rancorous dispute that had been escalating for months.
A.I.G. had long insured complex mortgage securities owned by Goldman and other firms against possible defaults. With the housing crisis deepening, A.I.G., once the world’s biggest insurer, had already paid Goldman $2 billion to cover losses the bank said it might suffer.
A.I.G. executives wanted some of its money back, insisting that Goldman — like a homeowner overestimating the damages in a storm to get a bigger insurance payment — had inflated the potential losses. Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities.
After more than an hour of debate, the two sides on the call signed off with nothing settled, according to internal A.I.G. documents and an audio recording reviewed by The New York Times.
Behind-the-scenes disputes over huge sums are common in banking, but the standoff between A.I.G. and Goldman would become one of the most momentous in Wall Street history. Well before the federal government bailed out A.I.G. in September 2008, Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash. That ultimately provoked the government to step in.
(Excerpt) Read more at nytimes.com ...
Has anyone else noticed that none of these billion dollar losses have gone to court?
GM secured bondholders did not go to court.
yitbos
Notice that A.I.G. did not have the assets to backup the policies it was writing? How is this not illegal?
Now do you see the outrage in these so-called "protection devices"?
They aren't. They were raw bets. Very highly-leveraged gambling instruments that had a very low cost at origination - a cost all out of proportion to their eventual potential return.
We do not let "just anyone" buy insurance. You must have an insurable interest. That is, I can't buy fire insurance on your house. If I could, I might - and so might 20 of my best friends. We might even target those homes we think might have fires. We could even bribe the folks doing a controlled burn nearby to be a little less careful than they ordinarily would. Or, in the extreme case, one of us might just set a fire on purpose!
None of this is allowed in the insurance marketplace because it creates too many incentives for people to set fires and otherwise cause calamities, whether through outright unlawful conduct or helping along "a series of unfortunate events."
This is what we were discussing on this forum in 2006/7/: You make a swap deal that if your mortage bonds suffer, let's say, from a 6% default rate AIG will take them off you hands at their full value.
6% default occurs and AIG says OK we'll give you their full market value.
But there is no market for the bonds!!! There is no value.
We were talking about this long before the meltdown.
We always said, "And this hasn't even been to court, yet."
yitbos
I sure would like to see the internal A.I.G. documents & hear the audio recording reviewed by The New York Times. How about it Neuvo York wankers???
Same way banks loan money. Not all are expected to go bad or require payment at one time. A bank loans out something like 10 times or more it’s deposits. If everyone wanted their deposits back at one time the bank would have a run and crash without further support. Basically same here. No one expected them all to go bad at once. Unfortunately they did and there is no mechanism like there is in banks to help with this kind of problem. Took down the rest of the company.
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