In yet another damning overview of Goldman Sachs' business practices relating to their relationship with American International Group (AIG), (See: "
Testy Conflict With Goldman Helped Push A.I.G. to Edge") Gretchen Morgenson and Louise Story report in a lede in Sunday's NY Times how Goldman worked with other banks--most notably French banking conglomerate Societe Generale--to bring A.I.G. to its knees during the 18-month period (in 2007 and 2008) preceding the announced U.S. government bailout of the world's largest insurance firm.
Did Goldman conspire with other firms to drive AIG into the ground? According to today's Times' report, the answer is, "Yes." And, now the Securities and Exchange Commission--announcing what amounts to what is the seventh known investigation into the matter--wants to know whether Goldman's (et al) demands "improperly distressed the mortgage market..."
Testy Conflict With Goldman Helped Push A.I.G. to Edge
By GRETCHEN MORGENSON and LOUISE STORY
New York Times
Published In Print: February 7, 2010
...With taxpayer assistance to A.I.G. currently totaling $180 billion, regulatory and Congressional scrutiny of Goldman's role in the insurer's downfall is increasing. The Securities and Exchange Commission is examining the payment demands that a number of firms -- most prominently Goldman -- made during 2007 and 2008 as the mortgage market imploded.
The S.E.C. wants to know whether any of the demands improperly distressed the mortgage market, according to people briefed on the matter who requested anonymity because the inquiry was intended to be confidential...
Pulitzer-prize winner Morgenson tells us (rather clearly, I might add) that, based upon documented Goldman trading strategies, within weeks after Goldman CEO Henry Paulson was appointed Treasury Secretary (July 10, 2006) by President George W. Bush...
...Goldman stood to gain from the housing market's implosion because in late 2006, the firm had begun to make huge trades that would pay off if the mortgage market soured. The further mortgage securities' prices fell, the greater were Goldman's profits.
In fairness to Goldman, as the story reports it, the reality is that AIG's reckless behavior fully enabled Goldman to take advantage of it. But, the bottom line was that when the mortgage market collapsed "...A.I.G. became its biggest casualty -- and Goldman became one of the biggest beneficiaries."
As it has been noted by many, including yours truly, Goldman's exposure to AIG was far more than the $12.9 billion in taxpayer money it directly received as a result of the insurance company's bailout. The fact of the matter was that Goldman was in the middle of more than an additional $10 billion in AIG deals with other investment banks. And, if AIG declared bankruptcy, Goldman would've been the obvious party for those counterparties to sue given the formal bankruptcy of AIG.
As today's Times' article tells us, without any caveats:
...a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
(NOTE: While many have speculated about this additional exposure, to date, I believe this is the first time the NY Times has stated this.)
Morgenson and Story continue along in their piece to provide even greater details relating to Goldman's record-breaking hubris, and it's well worth the read.
In closing, what's becoming increasingly self-evident with every passing day as we learn more and more about AIG-gate--and with the announcement of yet another investigation into this blatant ripoff--is the reality that it would have been virtually impossible for Bush Treasury Secretary Henry Paulson not to understand the impact an AIG bankruptcy would have upon his former employer of 32 years, Goldman Sachs. From: "Fed-AIG Scandal For Dummies: Corporate Kleptocracy Edition:"
Considering the significant percentage of Goldman's position in CDOs (equivalent to more than half of Goldman's entire net worth in the third quarter of 2008, according to Fiderer's analysis, linked above), and understanding that it was under none other than then-Treasury Secretary Hank Paulson's watch as CEO of Goldman when many of these original deals--and, indeed this entire strategy--were formulated, it is beyond far-fetched to posit that Paulson was not aware of the severity of the situation when he made the call to, essentially, take over AIG in mid-September 2008, and subsequently replace AIG CEO Willumsted with none other than a member of Goldman's Board of Directors, Liddy.
To even begin to think that Bush Treasury Secretary Henry Paulson has "clean hands" in what has clearly become the most glaring corporate kleptocracy story in U.S. history is nothing short of wishful thinking.
This story is not going away.
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If you'd like to learn more about this story...
2010--
How Paulson's People Colluded with Goldman to Destroy AIG... (1/28/10)
Fed-AIG Scandal For Dummies: Corporate Kleptocracy Edition (1/27/10)
Is Geithner Toast? Barofsky Announces 2 New Fed-AIG Probes (1/26/10)
Reuters: SEC Considered AIG Bailout National Security Matter (1/25/10)
Naked Capitalism Guest Post: AIG Bailout Secrets Exposed! (1/23/10)
Breaking (Update): Fed Denies House Subpoena For AIG Docs (1/12/10)
2009--
3 Fraud Probes Target Goldman, AIG: Is It "The" Story of 2010? (12/28/09)
"The AIG-Wall St. Bailout Corruption Story That Won't Go Away" (12/23/09)
"Breaking WSJ: Massive Goldman-AIG Bailout Conflict Of Interest" (12/12/09)
"New Economic Travesties: GDP Revision, Goldman/AIG, Reform" (11/24/09)
"Goldman's Eviscerated In NYT; Admits Geithner's 'AIGenerosity' (11/22/09)
Gretchen Morgenson, over at the NY Times: Revisiting a Fed Waltz With A.I.G." (11/22/09)
"Fed'l Reserve, IG Barofsky: Paulson, Treasury Lied To Public" (10/6/09)
One of Gretchen Morgenson's (NYT) best pieces of the entire recession: "Member and Overseer of the Finance Club" (4/27/09)
"Is it the largest betrayal of public trust in history?" (3/15/09)
"Doesn't Geithner's Middle Finger Look Just Like Paulson's?" (3/12/09)
"Wall St. Bailout: Is A Massive Scandal About To Unfold?" (3/8/09)
"On Geithner, NYT Leak and TARP II Drama: Kuttner Nails It" (2/13/09)
2008--
"Fed Refuses to Name Recipients of $2 Trillion Bailout" (11/10/08)
"Paulson/Fed Gives O.K. To Banks To Steal Your Money! (For real!)" (9/16/08)
"BREAKING: NY Times, 'AIG joins Merrill and Lehman in Wall Street Collapse'" (9/15/08)