Monday, March 16, 2009

Let's revisit a story on AIG and Goldman Sachs

Now that we know who AIG's counterparties were, and the amount of exposure Goldman Sachs had to AIG, let's look back to this piece written September 27, 2008.

At least we knew then, what the world knows now.

AIG and Goldman Sachs were both lying!!

Saturday, September 27, 2008

The Government and Buffet bail out Goldman Sachs?!?!

Say it ain't so Lloyd Blankfein!!

But is that accurate? Let's go over and view the details in this story!

What did AIG say about AIGFP in December?

AIGFP maintains the ability opportunistically to economically hedge specific securities in a portfolio and thereby further limit its exposure to loss and has hedged outstanding transactions in this manner on occasion. AIGFP has never had a payment obligation under these credit derivatives transactions where AIGFP is providing credit protection on the super senior risk. Furthermore... no transaction has experienced credit losses in an amount that has made the likelihood of AIGFP having to make a payment, in AIGFP’s view, to be greater than remote, even in severe recessionary market scenarios.

On February 28, AIG said this:

Included in both the full year and fourth quarter 2007 net income (loss) and adjusted net income (loss) were charges of approximately $11.47 billion pretax ($7.46 billion after tax) and $11.12 billion pretax ($7.23 billion after tax), respectively, for a net unrealized market valuation loss related to the AIG Financial Products Corp.(AIGFP) super senior credit default swap portfolio.

From no material exposure to $11 billion in two months.

Now when AIG was on the ropes, Goldman Sachs, on September 16th said it's exposure to AIG was "not material."

``Our exposure to AIG is not material,'' Lucas van Praag, a Goldman spokesman, said today in an interview. ``We have always managed our exposure to single names extremely conservatively. That was the case with Bear and Lehman.''

That statement was as accurate as AIG's December statement! In fact, Goldman Sach's exposure to AIG was $20 billion! Look at today's NY Times:

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

"Our exposure to AIG is not material?" Did they read AIG's playbook? Look at what I wrote about Goldman Sachs on September 13th.

Goldman, however has been able to offset these losses with Level 3 gains on derivatives. As of their latest quarterly report Goldman had economic exposure to these derivative contracts of $78.7 billion dollars after all netting and cash collateral has been subtracted out. So it's true counterparty exposure.

What is the ratings of Goldman's counterparties to these derivaties, in May, before the all holy hell which is now currently engulfing Wall Street?

AAA 11%
AA 33%
A 27%
BBB 12%
BB 15%
Unrated 2%

AIG then was a AA counterparty, and 33% of 78.7 billion is $25 billion. Goldman's exposure to AA credit AIG in swaps, according to the NY Times was $20 billion.

Now we know why these derivatives are in Level 3! And why AIG and Goldman were in bed together.

They have the same definition of material!

No comments: