Saturday, April 17, 2010
Bear Sterns: The Goldman/Paulson deal was even too unethical for us
(And how many millions again did Bill Bennett lose at casinos, because he couldn't rig the odds?)
How about Paulson's moral compass?
Paulson felt unburdened by any moral compass. (Of course not. He aleady fixed the odds. He wasn't gambling!) Though he had made clear that the CDOs should be stuffed with only risky slices of debt, Paulson accepted no personal responsibility, claiming “it was a negotiation; we threw out some names, they threw out some names, but the bankers ultimately picked the collateral. We didn’t create the securities, we never sold the securities to investors…”
But here's the real blockbuster. Abacus wasn't just any old mortgage-backed security. It was one of a toxic group that nearly brought down insurance giant AIG, as the New York Times pointed out last December. Goldman Sachs sold credit-default swaps to Paulson, according to the SEC. That left Goldman holding the risk on Abacus. According to a nice breakdown by the Wall Street Journal this week, here's how Goldman handled it: "Goldman bought credit-default swaps from AIG to hedge the securities firm's positions in some of the [Abacus] pools. When many subprime borrowers began defaulting on their loans in 2007 and 2008, the Abacus CDOs dropped in value, and AIG had to post billions of dollars in cash collateral to Goldman."