Tuesday, March 3, 2009

The taxpayer's $20 billion gift to Goldman Sachs

Today on CNBC, Hank Greenberg said what everybody already knew. Goldman Sachs had exposure for $20 billion of credit default swaps that they had bought from AIG, and they were paid from taxpayer bailout money.

Goldman's CEO, Llyod Blankfein was in the room when the bailout for AIG was being implemented, and Hank Greenberg, AIG's largest individual shareholder was not.

Here is the NY Times version:

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.

Now Goldman's version:

``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.''

Viniar, the CFO, declined to comment on possible financial transactions between Goldman and AIG.

Then Goldman backpedaled and said:

Lucas van Praag, a Goldman spokesman, declined to detail how badly hurt his firm might have been had A.I.G. collapsed two weeks ago. He disputed the calculation that Goldman had $20 billion worth of risk tied to A.I.G., saying the figure failed to account for collateral and hedges that Goldman deployed to reduce its risk.

Regarding Mr. Blankfein’s presence at the Fed during talks about an A.I.G. bailout, he said: “I think it would be a mistake to read into it that he was there because of our own interests. We were engaged because of the implications to the entire system.”

Mr. van Praag declined to comment on what communications, if any, took place between Mr. Blankfein and the Treasury secretary, Mr. Paulson, during the bailout discussions.

Now Hank Greenberg tells us the real story today. How do we know his version was the real story? Let's take a look at page 178 on HGO 281.000; The House of Representatives Hearing on the Causes and Effects of the AIG bailout.

Mr. Willumstad, did Goldman Sachs have anything to lose
if AIG went under?

Mr. WILLUMSTAD. Goldman Sachs was a significant
counterparty for AIG

Mr. YARMUTH. To what extent are the relationships
intertwined, and how much do you think Goldman Sachs would
have suffered financially? What kind of stake was there for
Goldman Sachs and AIG's survival?

Mr. WILLUMSTAD. I can't tell you what losses Goldman
Sachs might have suffered because I don't know. The only
thing I can tell you is that Goldman Sachs was a counterparty
on approximately $20 billion worth of credít default swaps
that AIG-FP had.

Hank Greenberg said AIG paid Goldman Sachs $20 billion dollars with their first injection of TARP money.

Blankfein at Goldman Sachs said their exposure to AIG was not material.

Today, you saw on CNBC who was lying.

And the farther the market goes down, the more dirty laundry will be aired.

So look for a rally from these levels--and quick!

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