The Secret Goldman Decoder Ring

Publish date:

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]