Comments on: Goldman’s collateral demands and the financial crisis

By: Danny_Black

Danny_Black — Mon, 05 Jul 2010 15:31:47 +0000

HBC, GS never got even close to 100 billion from the government via AIG. I know facts mean zip to you but on the off hand chance you feel like not embarassing yourself in the future:

Par value of CDOs insured by AIG for GS and GS clients:
roughly 20billionUSD

Market Value of CDOs at time of AIG collapse:
roughly 10billion USD

Collateral held against the CDSes before the collapse:
7.5billion.

Direct counterparty exposure to AIG:
2.5billion USD

At the most aggressive valuation GS got a grand total of 12.5billion – assuming their CDOs went to zero which they didn’t – which whilst it is not peanuts is nowhere near 100 billion but why confuse a rant with facts?

By: bwickes

bwickes — Fri, 02 Jul 2010 13:08:13 +0000

The FCIC is engaged in shameless posturing and you miss the point. You write that:
“Essentially what happened at AIG was that it bought subprime assets high and was forced, by the government, to sell those same assets low. In doing so, it lost so much money that it had to get bailed out by the government.”

But that is not “essentially” correct. The government got involved with AIG late, when the values of those assets had fell so far it was about to go bankrupt. That was no because of GS but because by then everyone thought CDO’s were toxic. AIG came to the government for a bailout the day after Lehman failed.

Moreover, it is funny how the same people who blame GS now blame the other banks for holding too much of CDO’s on their books. That is how Lehman, Merrill, BA, Citigroup, WAMU, failed. So GS is blamed for not doing what the other guys did. And the other guys are blamed for not doing what GS did.

Focus on GS by the FCIC is insurance that we will not learn from them anything about what caused the crisis.

By: DonthelibertDem

DonthelibertDem — Fri, 02 Jul 2010 05:18:21 +0000

“Yes, in a capitalist system it makes sense that Goldman would push hard for as much money as it could get its hands on. But its actions undoubtedly exacerbated both the financial crisis generally and the cost to taxpayers specifically. If the AIG insurance contracts had simply been allowed to stand and slowly unwind, rather than being torn up at great expense to the government and concomitant benefit to Goldman Sachs, the amount of damage done would have been much smaller.”

I’ll let Adam Smith answer for me:

http://econlib.org/library/Smith/smWN7.h tml#II.2.94

“But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.”

By: aosika

aosika — Fri, 02 Jul 2010 03:11:13 +0000

Cassano/AIG come off as, say, a flood insurer who claims they should still be in business… if it weren’t for floods.

By: najdorf

najdorf — Fri, 02 Jul 2010 01:58:05 +0000

aosika: Of course you’re right, if we take the our current state of crony capitalism where no financial company is allowed to go bankrupt as an immutable given. However, the fact is that we have pretty well-developed systems for handling the division of scarce debtor resources: contract law and, if necessary, bankruptcy.

The #1 problem with the AIG bailout is that it went around both of these systems in order to pay some creditors in full according to a function of their aggressiveness and political influence. The unpredictability, distrust, and unjust distribution of the spoils generated by these actions far outweigh any conceivable benefit that could be derived by auctioning off AIG’s assets slowly under a bizarre amalgam of old management, new management, and arbitrary ad hoc government oversight that makes up rules as it goes along.

By: HBC

HBC — Thu, 01 Jul 2010 20:42:00 +0000

It may come as no surprise to haughty Mr. Inviglio that Goldman got cashed out by their ex-employees for $100B twenty times faster than he could get an insurance agent to even pick up the phone about assessing routine valet-parking damage to his Gremlin. But to everyone else, it looks suspicious.

Actually, more than suspicious. It looks a lot like Grand Theft Treasury. There really has to be a better or at least less conspicuous way of doing government than neutering the FCIC.

By: aosika

aosika — Thu, 01 Jul 2010 20:35:37 +0000

I normally have very little sympathy for Goldman, but it couldn’t have been the only one demanding collateral. Knowing that my debtor would go spectacularly bust one way or another, I would fight for what’s mine. All the better that I have clout to pull off a full recovery for my shareholders.

By: Curmudgeon

Curmudgeon — Thu, 01 Jul 2010 20:21:42 +0000

We have certainly heard much about the role of GS alumni in government, and in particular during the meltdown. I doubt that Paulson did anything demonstrably wrong, even as his former firm profited from the venture. And I doubt that we should deny government the ability to take advantage of business expertise in making policy. But should Paulson and others have stood down during the crisis, due to at the very least the perception of a monumental conflict of interest? Or was their expertise of greater value than the conflict?