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Who pays on Goldman’s CIT hedges

July 14, 2009

Goldman Sachs keeps saying it has no exposure is CIT Group were to go bust, even though it has a $3 billion line of credit to the ailing mid-market lender.

David Viniar, the investment bank’s CFO, reitereated that mantra today during a conference call with analysts, saying Goldman has sufficient collateral and hedges to render any losses on CIT immaterial. Of course, that’s what Goldman said about its exposure to American International Group, even after taking $13 billion from the Fed to retire some CDOs that AIG had written credit defaults swap on.

But let’s take Viniar’s word on CIT. John Carney over at Clusterstock raises an interesting question in wondering just how Goldman has hedged itself and which parties may stand as potential paying counterparties to Goldman.

Sure, maybe Goldman can easily withstand a CIT collapse. But what about the counterparties that have provided the hedge to Goldman.

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