After reading the various articles related to the AIG bailout and related bonuses, I have begun to theorize that the citizens of the United States could be in the process of being misdirected to the shiny object. There is possibly a much bigger story just waiting for a real investigative journalist to dig it out.
That story is quite simply that over the course of the last two years, Goldman Sachs current and former partners have been orchestrating their own personal bailouts from inside the U.S government.
This all came together for me today while reading Matt Taibbi's incredible expose on AIG. However, I strongly believe that Matt buried the lede.
Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.
I will start by admitting that I am not a journalist. I have no access to Lexis Nexis. But I do have teh Google. And after I read Taibbi's piece, I felt compelled to dig a little deeper below the surface. My purpose is to provide puzzle pieces and awareness. To be clear, there is not enough information here to prove a grand conspiracy.
The following paragraphs were what inspired my curiosity:
Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.
When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."
Update [2009-3-22 12:23:15 by justmy2]: From the comments, lysias provides a link to a video of this actual meeting. Notice that screens were erected in front of the WH to ensure anonymity. While they were giving away billions, Bush and Paulson wanted to make sure there were no fingerprints. Sickening..
Ok, stop the presses. You are telling me that the CEO of the single biggest beneficiary of an AIG bailout was an active participant in the negotiations with the Government AND the lead negotiator was the previous CEO. You can't make this stuff up.
For instance, the paper reports that Goldman held swaps that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral from AIG. It ultimately got $450 million, then another $1.5 billion last October. At that point, says the Journal:
Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG's own debt.
That picture of Goldman's exposure jibes with a New York Times story from September 2008 about the credit default swaps, which reported that Goldman was AIG's "largest trading partner," and likewise gave a figure of $20 billion for Goldman's exposure to AIG.
$20 billion? Goldman's profit last year was $22 billion.
Question One - Were any of the other counter-parties invited? If not, why not? I could make a few guesses, and the first one used to be the Treasury Secretary. Whose interest did Hank Paulson have in mind during negotiations, his former Goldman buddies, taxpayers, or his own?
Well, I decided to dig around a bit and find out if Paulson still had any restricted shares of Goldman. Did he have an interest in making sure they stayed above water? Ultimately, I discovered Paulson, sold off his shares when he became Treasury Secretary,
But that actually did not mean Paulson was off the hook.
Interestingly, under U.S. government ethics rules, while Paulson is required to sell the shares, he is also exempt from paying taxes on any capital gains on the sale if he obtains a certificate of divestiture. The rule granting the exemption is designed to make sure prospective government employees who own a lot of stock are not dissuaded from joining the government.
Earlier this week, the Economist magazine estimated the rule eliminate a tax liability of up to about $200 million for Paulson.
As a result, Paulson, and others in the political appointees, are able to sell shares and have the funds reinvested in more diverse holding, and will only be subject to taxes on the capital gains when and if they are later realized.
So Paulson got out at $152 (GS went down to $49 this year and is back around $100), selling off of his holdings dues to his appointment and diversified his portfolio without paying a dime in capital gains taxes, even at the 15% rate. Nice deal if you can get it. And you have to believe his friends wanted in some of those goodies.
The picture begins to become clear. The former Goldman Sachs crew were all ready to take any action necessary to save their baby.
What first struck me upon news of Paulson's possible appointment was that he's too smart to take on this task, with Bush's approval ratings for his economic policies hovering around 40 percent. Then, I got it. Paulson is Bush's last hurrah--and his last chance.
In retrospect, could it have been that Paulson saw the trainwreck coming and was sent in as a trojan horse to make sure the old gang was protected when the poop hit the fan. I wouldn't put it past these guys, and Bush certainly had no incentive to stop it.
John Thain, Robert Rubin (who mentored Geithner), Josh Bolten etc, were all former Goldman Partners, likely with remaining interests in the firm. Could it get anymore incestuous? And you wonder why everyone's hair was on fire last October and Paulson wanted no rules attached. The former firm's partners were in it to win it.
But let's return to Taibbi's piece.
Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari
The plot thickens. To be clear, Liddy was not just an ex Goldman board member, he LEFT Goldman's board to takeover AIG.
In September 2008, Treasury Secretary Henry Paulson chose Liddy to head American International Group. Five years earlier, when Paulson was running Goldman Sachs Group, he also selected Liddy to join that board.
The very man put in place to run AIG, was on the Board of the company most likely to go tumbling if AIG failed. Are we beginning to see a pattern here?
And lest you believe our current Treasury secretary has his hands clean, think again...
THIS summer, as he fought for the survival of Lehman Brothers, Richard S. Fuld Jr., its chief executive, made a final plea to regulators to turn his investment bank into a bank holding company, which would allow it to receive constant access to federal funding.
Timothy F. Geithner, the president of the Federal Reserve Bank of New York, told him no, according to a former Lehman executive who requested anonymity because of continuing investigations of the firm’s demise. Its options exhausted, Lehman filed for bankruptcy in mid-September.
One week later, Goldman and Morgan Stanley were designated bank holding companies.
The New York Fed, which declined to comment, has become, after Treasury, the favorite target for Goldman conspiracy theorists. As the most powerful regional member of the Federal Reserve system, and based in the nation’s financial capital, it has been a driving force in efforts to shore up the flailing financial system.
Mr. Geithner, 47, played a pivotal role in the decision to let Lehman die and to bail out A.I.G. A 20-year public servant, he has never worked in the financial sector. Some analysts say that has left him reliant on Wall Street chiefs to guide his thinking and that Goldman alumni have figured prominently in his ascent.
But it get's better, guess who was on the search firm that selected Geithner to head the New York Fed...
Among those on an outside advisory committee were the former Fed chairman Paul A. Volcker; the former A.I.G. chief executive Maurice R. Greenberg; and John C. Whitehead, a former co-chairman of Goldman.
Goldman, Geithner, and AIG sitting in tree...
I hadn't seen this name before I started researching this diary, but it certainly seems like we are much closer to "Government Sachs" than we even know.
As we watch the bank plan come out this week, keeps your eyes out for the Goldman Goose....
Update [2009-3-22 11:8:16 by justmy2]: ctkeith makes a great point in the comments about Warren Buffet jumping into Goldman Sachs almost immediately after the infamous AIG bailout meeting.
By Tami Luhby, CNNMoney.com senior writer
September 24, 2008: 12:53 PM ET
In its first big move to raise capital, Goldman Sachs Group announced Tuesday that it will receive a $5 billion infusion from Warren Buffett's Berkshire Hathaway, an investment that could also raise confidence in the venerable Wall Street firm and the financial markets in general.
...
Goldman is now using its relative position of strength to boost its capital levels and mollify investors and regulators.
"This investment will further bolster or strong capitalization and liquidity position," said Lloyd Blankfein, Goldman's chief executive.
Remember, this was 10 days after AIG was bailed out, with Blankfein in the negotiation room.
Oh what a tangled web we weave...
Update [2009-3-22 14:15:44 by justmy2]: Guess who runs the New York Fed, Geithner's old position.
I will give you three guesses and the first two don't count.
In recent years, many former Goldman executives have moved into government. Paulson left Goldman in 2006 as chief executive. The chairman of the New York Federal Reserve is former Goldman Chairman Steve Friedman.
"The person that should be subpoenaed is Hank Paulson. How do you go from running Goldman Sachs in '05 and '06 and making all of these bets with AIG's financial products unit and then end up in the government guaranteeing those bets and not have a conflict of interest?" Stansberry asked.
To their credit, Reuters was on this story last week.