Monday, July 26, 2010

Goldman Sachs and The Backdoor Bailouts

Bloomberg reports this morning that Goldman Sachs' documents show that it "depended on banks including Citigroup Inc. and Lehman Brothers Holdings Inc. for protection against a failure of American International Group Inc. "

You might remember all the convoluted deals involving GS, AIG, and taxpayer bailout money and the claims from the big banks that they repaid the bailout money (except C). Citigroup received the biggest bailout and "was Goldman Sachs’s largest provider of credit- default swaps on AIG as of Sept. 15, 2008".

"Goldman Sachs, the most profitable securities firm in Wall Street history, has argued that it didn’t depend on the U.S. government’s $182.3 billion rescue of AIG because the investment bank had collateral and credit-default swaps to protect itself. Joshua Rosner, an analyst at research firm Graham Fisher & Co. in New York, said the list of counterparties indicates that Goldman Sachs may have had difficulty collecting on those swaps".

“Clearly Goldman’s calculation was more tied to their expectation of the political dynamics of forcing moral hazard than the fundamental realities of the financial strength of counterparties,”

‘Backdoor Bailout’

"Lawmakers, including Representative Darrell Issa, the California Republican, have called the AIG rescue a “backdoor bailout” of Goldman Sachs, as well as the other banks that got 100 percent of the money AIG owed them. The government bailout of AIG meant Goldman Sachs never had to collect on credit default swaps it bought to cover a default".

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