God's werk: 'Grote' verliezen veranderden daarna in 'kleine' verschillen

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

De belangrijkste zin uit onderstaand artikel: 'The federal bailout
locked in the paper losses of those deals for A.I.G. The prices on many
of those securities have since rebounded.'

Het restant om de lokale temperatuur te meten ;)

Groet / Cees

PS. Hoe zou het voelen om in de tijd van een oogopslag 200x bestolen te
worden? En dat uren lang? Elke beursdag weer!

5. Disappearing middle class, Smalltown, Midwest Febr 6th, 2010 2:01 pm
It is interesting to see the article about the "modesty" of the Goldman
Sachs CEO taking "just" $9 million dollars be replaced from the front of
the website by this one about the tricks the company used to make money
and in the process bring the economy down, before (and after) benefiting
from tax payer money.

I wish you had left those two articles just side by side. That tells us
all we need to know about the crisis. Bring on the crisis by rigging the
system backwards and forwards, benefit from it while millions of
people's lives are falling apart and then believe you are being modest
for just taking $9 million this year.

At this point I actually don't really care about the bonuses anymore, I
just want this system to be taken down where these guys hold the rest of
us hostage to the effects of their manipulations and greed. The entire
financial sector seems to be nothing but a gigantic Ponzi scheme.

Whenever Wall Street does well these days, I start to worry because it
means they have just found another way of stealing money from us.
  Recommend  Recommended by 333 Readers

4. Elizabeth Renant Santa Fe, NM February 6th, 2010 2:01 pm
Anyone who still doubts that the middle-class in this country was
offered up to the plutocrats in a massive sacrifice of the many for the
few, rather than allowing "capitalism" to work and both institutions to
fail as they deserved to, deserves everthing he gets in the future.

The idea that the world would have fallen in if these sods had reaped
what they had sowed is nonsense. Economists on both the left and right
admit that now (anyone see the startlingly similar comments of David
Stockman and Paul Krugman on this last night on Lehrer?).

You were had, folks. This country is dead as a democracy where the
middle-class have any protection from financial predators, who are
cahoots with the government.

This stinks to high heaven. They should burn the Capitol building down
and sow salt in its ashes.
  Recommend  Recommended by 283 Readers

14. DDH CT February 6th, 2010 2:18 pm
Please stop. We can bear no more. the great majority of Americans have
tried to conduct our personal and professional lives with some dignity,
adhering to a shared code of ethics, trying to be a part of our local
and national community - a tacit signature on a social compact that
ensures that all of us will care for others and, in turn, be cared for.
These dreadful, immoral and unethical individuals are beneath contempt,
no more than common thieves. Their behavior preys upon our fundamental
belief in the decency of human beings, and in the end, they take no
responsibility for their actions and in fact, indicate that they are
eager to perpetrate more of their criminal schemes. And our government
chooses to do nothing, happily and greedily complicit in this fleecing
of our once-great Nation.
  Recommend  Recommended by 242 Reader

3. ChrisW Philadelphia February 6th, 2010 2:01 pm
Sounds like grounds for RICO charges against Goldman's directors. Does
anyone have the nuts to do it?
  Recommend  Recommended by 231 Readers

12. Dr Wu Boston February 6th, 2010 2:01 pm
Goldman Sachs--aka Government Sachs, aka the place that does God's work,
bled AIG dry? And then the government gave them even more money? It all
proves one thing: G-S runs the government and probably the world.They
make their money selling illusions and bubbles. They make nothing real.
These illusionists control our economy and since they own the royal road
to riches and are holding on tightly,they are leading the rest of us
lemmings over the cliff.
  Recommend  Recommended by 187 Reader

11. rwgat austin February 6th, 2010 2:01 pm
We dilly dally about 'regulating' the financial sector, when actually,
it should simply be investigated for what it is: racketeering, under a
high falutin' name. At least finally, after a year of GS lies about how
its money with AIG was fully hedged, we are getting these little
glimpses of light. I believe that if the GS spokespeople have been lying
about that mythical hedging, the company has violated various laws, and
should be prosecuted with vigor.
  Recommend  Recommended by 165 Readers

9. s. reid portland February 6th, 2010 2:01 pm
Goldman financed Obama's presidency. That is their real insurance.
  Recommend  Recommended by 149 Readers

2. andrew NY February 6th, 2010 2:01 pm
If AIG was paying out billions to Goldman and others as early as 2007
under those swap contracts, how could AIG Financial Products have
possibly reported profits to support those enormous bonuses.AIG must be
the dumbest or the most fraudulent company in history. Either they wrote
sweetheart contracts with lucky employees of AIGFP who were allowed to
collect bonuses on underwater contracts, or they simply closed their
eyes and raided the corporate treasury.
It is shameful that taxpayers had to bail out AIG and self-evident that
the motivation was the benfit to Goldman by Goldman alums.
  Recommend  Recommended by 141 Readers

19. J.G. Wentworth santa cruz February 6th, 2010 3:38 pm
Goldman should have taken the loss, along with AIG. I am disgusted by my
government. AIG and Goldman gambled, and should have lost. While their
roulette wheel was working for them, American taxpayers did not share
their wealth. When the roulette wheel broke, who bailed them out? WE
did. It is a crime that CDS=credit defalut swaps were traded among those
who had no "insurable interest". You cannot allow this. It was wrong to
give Goldman 100 cents on the dollar for their gambling losses. History
will record this absurdity as the worst theft of taxpayer money ever.
Who enabled this? Timothy Geithner and the NY Fed.
  Recommend  Recommended by 128 Readers

24. ifatfirst New York, NY February 6th, 2010 3:38 pm
The more you read about Goldman Sachs activities the more you realize
how thoroughly evil this corporation is and how it would be in
everybody's interests to break it up.


February 7, 2010
Testy Conflict With Goldman Helped Push A.I.G. to Edge
http://www.nytimes.com/2010/02/07/business/07goldman.html
By GRETCHEN MORGENSON and LOUISE STORY

Billions of dollars were at stake when 21 executives of Goldman Sachs
and the American International Group convened a conference call on Jan.
28, 2008, to try to resolve a rancorous dispute that had been escalating
for months.

A.I.G. had long insured complex mortgage securities owned by Goldman and
other firms against possible defaults. With the housing crisis
deepening, A.I.G., once the world’s biggest insurer, had already paid
Goldman $2 billion to cover losses the bank said it might suffer.

A.I.G. executives wanted some of its money back, insisting that Goldman
— like a homeowner overestimating the damages in a storm to get a bigger
insurance payment — had inflated the potential losses. Goldman countered
that it was owed even more, while also resisting consulting with third
parties to help estimate a value for the securities.

After more than an hour of debate, the two sides on the call signed off
with nothing settled, according to internal A.I.G. documents and an
audio recording reviewed by The New York Times.

Behind-the-scenes disputes over huge sums are common in banking, but the
standoff between A.I.G. and Goldman would become one of the most
momentous in Wall Street history. Well before the federal government
bailed out A.I.G. in September 2008, Goldman’s demands for billions of
dollars from the insurer helped put it in a precarious financial
position by bleeding much-needed cash. That ultimately provoked the
government to step in.

With taxpayer assistance to A.I.G. currently totaling $180 billion,
regulatory and Congressional scrutiny of Goldman’s role in the insurer’s
downfall is increasing. The Securities and Exchange Commission is
examining the payment demands that a number of firms — most prominently
Goldman — made during 2007 and 2008 as the mortgage market imploded.

The S.E.C. wants to know whether any of the demands improperly
distressed the mortgage market, according to people briefed on the
matter who requested anonymity because the inquiry was intended to be
confidential.

In just the year before the A.I.G. bailout, Goldman collected more than
$7 billion from A.I.G. And Goldman received billions more after the
rescue. Though other banks also benefited, Goldman received more
taxpayer money, $12.9 billion, than any other firm.

In addition, according to two people with knowledge of the positions, a
portion of the $11 billion in taxpayer money that went to Société
Générale, a French bank that traded with A.I.G., was subsequently
transferred to Goldman under a deal the two banks had struck.

Goldman stood to gain from the housing market’s implosion because in
late 2006, the firm had begun to make huge trades that would pay off if
the mortgage market soured. The further mortgage securities’ prices
fell, the greater were Goldman’s profits.

In its dispute with A.I.G., Goldman invariably argued that the
securities in dispute were worth less than A.I.G. estimated — and in
many cases, less than the prices at which other dealers valued the
securities.

The pricing dispute, and Goldman’s bets that the housing market would
decline, has left some questioning whether Goldman had other reasons for
lowballing the value of the securities that A.I.G. had insured, said
Bill Brown, a law professor at Duke University who is a former employee
of both Goldman and A.I.G.

The dispute between the two companies, he said, “was the tip of the
iceberg of this whole crisis.”

“It’s not just who was right and who was wrong,” Mr. Brown said. “I also
want to know their motivations. There could have been an incentive for
Goldman to say, ‘A.I.G., you owe me more money.’ ”

Goldman is proud of its reputation for aggressively protecting itself
and its shareholders from losses as it did in the dispute with A.I.G.

In March 2009, David A. Viniar, Goldman’s chief financial officer,
discussed his firm’s dispute with A.I.G. in a conference call with
reporters. “We believed that the value of these positions was lower than
they believed,” he said.

Asked by a reporter whether his bank’s persistent payment demands had
contributed to A.I.G.’s woes, Mr. Viniar said that Goldman had done
nothing wrong and that the firm was merely seeking to enforce its
insurance policy with A.I.G. “I don’t think there is any guilt
whatsoever,” he concluded.

Lucas van Praag, a Goldman spokesman, reiterated that position. “We
requested the collateral we were entitled to under the terms of our
agreements,” he said in a written statement, “and the idea that A.I.G.
collapsed because of our marks is ridiculous.”

Still, documents show there were unusual aspects to the deals with
Goldman. The bank resisted, for example, letting third parties value the
securities as its contracts with A.I.G. required. And Goldman based some
payment demands on lower-rated bonds that A.I.G.’s insurance did not
even cover.

A November 2008 analysis by BlackRock, a leading asset management firm,
noted that Goldman’s valuations of the securities that A.I.G. insured
were “consistently lower than third-party prices.”

To be sure, many now agree that A.I.G. was reckless during the mortgage
mania. The firm, once the world’s largest insurer, had written far more
insurance than it could have possibly paid if a national mortgage
debacle occurred — as, in fact, it did.

Perhaps the most intriguing aspect of the relationship between Goldman
and A.I.G. was that without the insurer to provide credit insurance, the
investment bank could not have generated some of its enormous profits
betting against the mortgage market. And when that market went south,
A.I.G. became its biggest casualty — and Goldman became one of the
biggest beneficiaries.

Longstanding Ties

For decades, A.I.G. and Goldman had a deep and mutually beneficial
relationship, and at one point in the 1990s, they even considered
merging. At around the same time, in 1998, A.I.G. entered a lucrative
new business: insuring the least risky portions of corporate loans or
other assets that were bundled into securities.

A.I.G.’s financial products unit, led by Joseph J. Cassano, was behind
the expansion. To reduce its own risks in the transactions, the company
structured deals so that it would not have to make early payments to
clients when securities began to sour. That changed around 2003,
however, when A.I.G. began insuring portions of subprime mortgage deals.
A lawyer for Mr. Cassano said his client would not comment for this
article. A.I.G. also declined to comment.

Alan Frost, a managing director in Mr. Cassano’s unit, negotiated scores
of mortgage deals around Wall Street that included a complicated
sequence of events for when an insurance payment on a distressed asset
came due.

The terms, described by several A.I.G. trading partners, stated that
A.I.G. would post payments under two or three circumstances: if mortgage
bonds were downgraded, if they were deemed to have lost value, or if
A.I.G.’s own credit rating was downgraded. If all of those things
happened, A.I.G. would have to make even larger payments.

Mr. Frost referred questions to his lawyer, who declined to comment.

Traders loved Mr. Frost’s deals because they would pay out quickly if
anything went wrong. Mr. Frost cut many of his deals with two Goldman
traders, Jonathan Egol and Ram Sundaram, who had negative views of the
housing market. They had made A.I.G. a central part of some of their
trading strategies.

Mr. Egol structured a group of deals — known as Abacus — so that Goldman
could benefit from a housing collapse. Many of them were actually
packages of A.I.G. insurance written against mortgage bonds, indicating
that Mr. Egol and Goldman believed that A.I.G. would have to make large
payments if the housing market ran aground. About $5.5 billion of Mr.
Egol’s deals still sat on A.I.G.’s books when the insurer was bailed out.

“Al probably did not know it, but he was working with the bears of
Goldman,” a former Goldman salesman, who requested anonymity so he would
not jeopardize his business relationships, said of Mr. Frost. “He was
signing A.I.G. up to insure trades made by people with really very
negative views” of the housing market.

Mr. Sundaram’s trades represented another large part of Goldman’s
business with A.I.G. According to five former Goldman employees, Mr.
Sundaram used financing from other banks like Société Générale and
Calyon to purchase less risky mortgage securities from competitors like
Merrill Lynch and then insure the assets with A.I.G. — helping fatten
the mortgage pipeline that would prove so harmful to Wall Street,
investors and taxpayers. In October 2008, just after A.I.G. collapsed,
Goldman made Mr. Sundaram a partner.

Through Société Générale, Goldman was also able to buy more insurance on
mortgage securities from A.I.G., according to a former A.I.G. executive
with direct knowledge of the deals. A spokesman for Société Générale
declined to comment.

It is unclear how much Goldman bought through the French bank, but
A.I.G. documents show that Goldman was involved in pricing half of
Société Générale’s $18.6 billion in trades with A.I.G. and that the
insurer’s executives believed that Goldman pressed Société Générale to
also demand payments.

Goldman’s Tough Terms

In addition to insuring Mr. Sundaram’s and Mr. Egol’s trades with
A.I.G., Goldman also negotiated aggressively with A.I.G. — often
requiring the insurer to make payments when the value of mortgage bonds
fell by just 4 percent. Most other banks dealing with A.I.G. did not
receive payments until losses exceeded 8 percent, the insurer’s records
show.

Several former Goldman partners said it was not surprising that Goldman
sought such tough terms, given the firm’s longstanding focus on risk
management.

By July 2007, when Goldman demanded its first payment from A.I.G. — $1.8
billion — the investment bank had already taken trading positions that
would pay out if the mortgage market weakened, according to seven former
Goldman employees.

Still, Goldman’s initial call surprised A.I.G. officials, according to
three A.I.G. employees with direct knowledge of the situation. The
insurer put up $450 million on Aug. 10, 2007, to appease Goldman, but
A.I.G. remained resistant in the following months and, according to
internal messages, was convinced that Goldman was also pushing other
trading partners to ask A.I.G. for payments.

On Nov. 1, 2007, for example, an e-mail message from Mr. Cassano, the
head of A.I.G. Financial Products, to Elias Habayeb, an A.I.G.
accounting executive, said that a payment demand from Société Générale
had been “spurred by GS calling them.”

Mr. Habayeb, who testified before Congress last month that the payment
demands were a major contributor to A.I.G.’s downfall, declined to be
interviewed and referred questions to A.I.G. The insurer also declined
to comment for this article. Mr. van Praag, the Goldman spokesman, said
Goldman did not push other firms to demand payments from A.I.G.

Later that month, Mr. Cassano noted in another e-mail message that
Goldman’s demands for payment were becoming problematic. “The overhang
of the margin call from the perceived righteous Goldman Sachs has
impacted everyone’s judgment,” he wrote to five employees in his division.

By the end of November 2007, Goldman was holding $2 billion in cash from
A.I.G. when the insurer notified Goldman that it was disputing the
firm’s calculations and seeking a return of $1.56 billion. Goldman
refused, the documents show.

In many of these deals, Goldman was trading for other parties and taking
a fee. As the mortgage market declined, Goldman paid some of these
parties while waiting for A.I.G. to meet its demands, the Goldman
spokesman said. But one reason those parties were owed money on the
deals was that Goldman had marked down the securities.

Adding to the pressure on A.I.G., Mr. Viniar, Goldman’s chief financial
officer, advised the insurer in the fall of 2007 that because the two
companies shared the same auditor, PricewaterhouseCoopers, A.I.G. should
accept Goldman’s valuations, according to a person with knowledge of the
discussions. Goldman declined to comment on this exchange.

Pricewaterhouse had supported A.I.G.’s approach to valuing the
securities throughout 2007, documents show. But at the end of 2007, the
auditor began demanding that A.I.G. provide greater disclosure on the
risks in the credit insurance it had written. Pricewaterhouse was
expressing concern about the dispute.

The insurer disclosed in year-end regulatory filings that its auditor
had found a “material weakness” in financial reporting related to
valuations of the insurance, a troubling sign for investors.

A spokesman for Pricewaterhouse said the company would not comment on
client matters.

Insiders at A.I.G. bridled at Goldman’s insistence that they accept the
investment bank’s valuations. “Would we call bond issuers and ask them
what the valuation of their bonds was and take that?” asked Robert
Lewis, A.I.G.’s chief risk officer, in a message in January 2008. “What
am I missing here, so I don’t waste everybody’s time?”

When A.I.G. asked Goldman to submit the dispute to a panel of
independent firms, Goldman resisted, internal e-mail messages show. In a
March 7, 2008, phone call, Mr. Cassano discussed surveying other dealers
to gauge prices with Michael Sherwood, Goldman’s vice chairman. At that
time, Goldman calculated that A.I.G. owed it $4.6 billion, on top of the
$2 billion already paid. A.I.G. contended it only owed an additional
$1.2 billion.

Mr. Sherwood said he did not want to ask other firms to value the
securities because “it would be ‘embarrassing’ if we brought the market
into our disagreement,” according to an e-mail message from Mr. Cassano
that described the call.

The Goldman spokesman disputed this account, saying instead that Goldman
was willing to consult third parties but could not agree with A.I.G. on
the methodology.

Trouble Grows at A.I.G.

By the spring of 2008, A.I.G.’s dispute with Goldman was just one of its
many woes. Mr. Cassano was pushed out in March and the company’s
defenses against the growing demand for payments faltered. By the end of
August 2008, A.I.G. had posted $19.7 billion in cash to its trading
partners, including Goldman, according to financial filings.

Over that summer, A.I.G. had tried, unsuccessfully, to cancel its
insurance contracts with the trading partners. But Goldman, according to
interviews with former A.I.G. executives, would allow that only if it
also got to keep the $7 billion it had already received from A.I.G.
Goldman wanted to keep the initial insurance payouts and the securities
in order to profit from any future rebound.

In addition to offering to cancel its own contracts, Goldman offered to
buy all of the insurance A.I.G. had written for several other banks at
severely distressed prices, according to three people briefed on the
discussions.

Negotiating with Goldman to void the A.I.G. insurance was especially
difficult, Federal Reserve Board documents show, because the firm did
not own the underlying bonds. As a result, Goldman had little incentive
to compromise.

On Aug. 18, 2008, Goldman’s equity research department published an
in-depth report on A.I.G. The analysts advised the firm’s clients to
avoid the stock because of a “downward spiral which is likely to ensue
as more actual cash losses emanate” from the insurer’s financial
products unit.

On the matter of whether A.I.G. could unwind its troublesome insurance
on mortgage securities at a discount, the Goldman report noted that if a
trading partner “is not in a position of weakness, why would it accept
anything less than the full amount of protection for which it had paid?”

A.I.G. shares fell 6 percent the day the report was published. Three
weeks later, the United States government agreed to pour billions of
dollars in taxpayer money into the insurer to keep it from collapsing.

The government would soon settle the yearlong dispute between Goldman
and A.I.G., with Goldman receiving full value for its bets. The federal
bailout locked in the paper losses of those deals for A.I.G. The prices
on many of those securities have since rebounded.

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