We aren’t sure if Goldman took lessons from Greenspan, or if Greenspan learned from Goldman, but either way, the density of the Goldman discourse on a given AIG question reaches neutron star levels while entropy is impossibly high. Consider this bit from a recent Reuters Q&A:
QUESTION: If Goldman Sachs was collateralized and hedged on its AIG positions, why did it take $12.9 billion of taxpayer money?
ANSWER: “Goldman Sachs has maintained that its exposure to AIG was collateralized and hedged. The majority of Goldman Sachs’ CDS (credit default swap) exposure to AIG Financial Group was collateralized. That means that Goldman Sachs had collateral. To the extent it wasn’t collateralized, Goldman Sachs hedged its exposure via the credit default swaps market. If the government had allowed AIG to fail, Goldman Sachs would have received its collateral. A credit event would be triggered, and Goldman Sachs would receive a payout from the credit default swap insurance that it had. This is from other counterparties.”
Separating out the money Goldman received due to AIG’s securities lending obligations, DuVally said: “AIG was not allowed to fail. So there was no payout from the hedges. Additionally after the bailout there was some additional deterioration in AIG’s position. Under the terms of the contracts that Goldman Sachs had with AIG, it was entitled to collateral. We were always fully collateralized and hedged.”
What he said.
Q&A with Goldman Sachs over AIG bailout [Reuters]
We insured our insurance with insurers who assured us their insurance was assured. Of this we are sure.
What does all this mean for greens fees at Wee Burn and CCNC?
Yeah, but what was the collateral? Cash? A letter of credit? Robot insurance premiums from old people?
I see your point, but since when was taking the capital infusion optional? Paulson served it up to all of them, mouths bound and hands tied behind their backs, remember?
“Goldman Sachs would receive a payout from the credit default swap insurance that it had. This is from other counterparties.”
to the extent that the other counterparties could payout and weren’t relying on aig cds’ to cover….
How is it possible to make any money if everyone is laying their bets off on people they then have to buy insurance on? Makes no sense and their full of shit.
Also, if GS owns all of these AIG CDSs why were they not forced to hand those over to the govt for free when we bailed them out? Why were they allowed to keep those CDSs which they have probably made a fortune on – they were purchased as a hedge against the event we bailed them out of. Those CDSs should be transferred to us.
This is what we should be holding hearings on.
Hi, welcome to the world of derivatives. It just means AIG got a margin call. Their ‘risk-free’ collateral was not so free of risk.
Why is anyone suprised Gov’t Sachs isn’t going to get hurt by this at all?
Ackerman version: We prepared for the tidal wave by negotiating with the sharks then the other guy in our lifeboat stopped feeling scared so we’re now sitting back and catching some rays because when this is all said and done we’re going to eat him ourselves anyway.
Well, this about sums that up.
http://www.metacafe.com/watch/hl-5340941/in_living_color_united_negro_scholarship_fund_season_1/
Don’t play dumb EP. You wax philosophical on CDS all day, you know what they’re talking about.
This bullshit shows why Goldman Sachs should be left on the side of the road to die. Without the gov’t help last fall, that’s exactly where they and their friend Morgan Stanley would be.
Now, with the estimated $47B of future losses at GS and with $34B at MS looming large, I would like Uncle Sam to call back his TARP money from both of them and to revoke their bank status.
From the sound of that Q & A release, GS doesn’t seem to need gov’t help at all, so why continue to give it to them?
Hey, maybe congress can put a 100% tax on Winkelried’s departure bonus too.
The Guy from Delaware
I’m not the smart guy here on CDS or anything for that matter but am I the only one who thinks GS’s actually lays it out pretty simply? They either had the collateral from AIG or would get paid out from third-parties if AIG went belly-up. Why is this so Greenspanesque-y?
This is also why the process from the beginning should’ve been like what the FDIC has for failing depository institutions. Put the firms into conservatorship, spin-off the financial arm, unwind the crap positions, release back into the wild. This dithering nonsense is a waste of time and money.
@6,
“Also, if GS owns all of these AIG CDSs why were they not forced to hand those over to the govt for free when we bailed them out? Why were they allowed to keep those CDSs which they have probably made a fortune on”
Uncle Leo?
+1
I love the Goldman Dogma – ” Oh, yeah, um we at GS do not disclose that information…or that info…or that info..nope not that either…well, thanks for having me”
Oh EP, I love it when you speak thermodynamics.
personally, I have been impressed with EP. she nailed the legal issues surrounding clawback bonuses while a bunch of idiots claiming to be lawyers didnt have a single clue. shes been right on with CDS coverage from day one. the aviation color she added to the marcus schrenker and miracle on the hudson stories was priceless. though I think she is a bit easy on finance pros, she is a much needed shot of rationality and reality when others here are literally calling for public hangings and waving the american flag with the other hand. she defended liddy, who has made quite a showing today, yesterday, in the middle of calls to burn him at the stake. she was calling geithner and obama out of their depth weeks before it was totally obvious to everyone. she handles blistering attacks by methodically disassembling their argument and returning the insulting fire with the best of them. yes, shes a neoclassical pricing theory follower. we probably need at least one. keep it up EP.
Agree with 19. Plus, I love the occasional research-esque posts.
i agree with 13 – what’s the problem with their answer?