AIG: Collusion Of Epic Proportions Between Goldman's US Treasury Branch And Goldman Sachs Proper

Tyler Durden's picture

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lsbumblebee's picture

"Fascism should more properly be called corporatism because it is the merger of state and corporate power." - Benito Mussolini.

Anonymous's picture

You can't trust bloomberg. I mean when it escaluates to a certain level. The man spend most of his nest egg to be major of a town ruled by organized banksters. And also make his fortune dealing the information to these gansters. Mr. Bloomberg is "in". Joe corizine ; I'm undecided.

Good day

Anonymous's picture

Now you boys are getting IT on AIG. Further know that JP Morgan approached AIG to set up AIGFP. Also supplied them the bogas math behind the CDS contracts. Of Course AIG was established to be a front to Funneloney to counter parties. It is the 1st and main reason I became a conspiracy believer.

A close 2nd is Hank Paulson being right there to save the day with his nifty TARP plan.

The only question left is how deep does the conspiracy go? Not if, that obvious.

Anonymous's picture

Now you boys are getting IT on AIG. Further know that JP Morgan approached AIG to set up AIGFP. Also supplied them the bogas math behind the CDS contracts. Of Course AIG was established to be a front to Funneloney to counter parties. It is the 1st and main reason I became a conspiracy believer.

A close 2nd is Hank Paulson being right there to save the day with his nifty TARP plan.

The only question left is how deep does the conspiracy go? Not if, that obvious.

Anonymous's picture

TD,
A million, no a billion thanx for getting on point .

I would donate all my possesions if u focused your time on this /these/ themes.

Maybe later we tie in the oil/stock bubble/crashes.

Patrick

Anonymous's picture

TD didn't write this - it is being re-posted from Huffington Post and it was written by David Fiderer.

John Self's picture

I applaud anyone attempting to put together this much information on this critical topic.  However, I have several criticisms of the piece:

1.  I'm leery of any conspiracy theory that relies on a premise of "Goldman guys are really, really smart."  If they're so smart, how'd they get insolvent?

2.  "One of the common, and insidious, attributes of financial derivatives is that a counterparty may need to post margin."  Insidious???  Come on, this is laughable -- and it's the kind of hyperbole that makes a Huff Po piece of suspect credibility.  Posting and receiving margin is at the heart of risk protection.  There is absolutely nothing approaching insidiousness about it.

3.  "But if AIG filed for bankruptcy on June 25, 2010, Goldman could choose to liquidate its contract and hold on to its collateral, whereas Morgan Stanley might still insist of [sic] selling the oil on the later delivery date."  Yes, Goldman could liquidate its contract and, assuming it was in the money, hold on to its collateral.  But Morgan Stanely would not have the right to insist on selling the oil on the later delivery date.  If the Morgan contract were a financial burden, then AIG could and would reject the contract.  This is just plain wrong.

Anonymous's picture

Exactly on point number 2. Unless the writer of the piece thinks that all margin accounts (futures, fx, equities) should be shut down globally and we'll just see what happens at expiry shall we?

Often wrong but never unsure.

I am Anonymous.

Ned Zeppelin's picture

1.  He forgot to add, "...and twice as arrogant."

2.  "insidious" is being used in the sense of being a less than obvious (hence, insidious) source of later problems.

3.  Yup.  Goldman keeps the $20 cash collateral, drops the contract, and MS is shit out of luck.

Other than that, a pretty damning read, I'd say.

DaveyJones's picture

exactly, big britches boys go down all the time. Pride goeth before the fall - Herodotus

Anonymous's picture

Or perhaps insidious is being used in the sense of "working in an apparently innocuous way, but nevertheless harmful"

Either way, I don't see a problem with the author's use of insidious.

BTW (to the people complaining about insidious): Google is your friend (as long as you aren't Chinese or using Blogger ;)

Gordon_Gekko's picture

"how'd they get insolvent?"

They aren't. Never were, never will be. They own the goddamn printing press for Chrissakes! It's not that they are smart; it's just that they are good at threatening people, you know, kinda like the mafia.

Anonymous's picture

1. I'm leery of any conspiracy theory that relies on a premise of "Goldman guys are really, really smart." If they're so smart, how'd they get insolvent?

"insolvent" is a problem for the shareholders. Goldman executives, on the other hand, are going to make record bonuses again this year.

3. "But if AIG filed for bankruptcy on June 25, 2010, Goldman could choose to liquidate its contract and hold on to its collateral, whereas Morgan Stanley might still insist of [sic] selling the oil on the later delivery date." Yes, Goldman could liquidate its contract and, assuming it was in the money, hold on to its collateral. But Morgan Stanely would not have the right to insist on selling the oil on the later delivery date. If the Morgan contract were a financial burden, then AIG could and would reject the contract. This is just plain wrong.

You can't "reject a contract" that's already agreed to. However, in this example, AIG could liquidate the option contract in the open market and limit its losses.

Anonymous's picture

Outside of bankruptcy, sure, you're right that you can't "reject a contract" that's already agreed to. But the hypo was with AIG in bankruptcy. Section 365 of the Bankruptcy Code allows the debtor in possession to reject executory contracts, converting its future performance obligations into unsecured claims.

So in bankruptcy, Goldman would be able to liquidate because it's a safe harbor contract. AIG would reject the Morgan contract. Goldman would get out with whatever the value of the contract was on the petition date (but because it's the non-defaulting party, it gets to value the damages). Goldman would receive 100% to the extent of the collateral it held, but an unsecured claim for the rest. Morgan would have an unsecured claim for its damages from the rejection.

Seal's picture

substitute 'Goldman guys THINK a lot'

Ruth's picture

sorry ot....and the head of security at davos becomes suicided or whatever?  please, guess they couldn't make it a breach in security, that wouldn't go down to well

CD's picture

Just because we're 'paranoid' doesn't mean there wasn't external foul play (physical force or blackmail). The timing could be indicative of the peak of stress he was under, or a precipitous event at the Event to follow...

http://www.nzz.ch/nachrichten/schweiz/wef_davos_graubuenden_kantonspolizei_todesfall_kommandant_1.4641260.htmlTranslated:

http://translate.google.com/translate?u=http://www.nzz.ch/nachrichten/schweiz/wef_davos_graubuenden_kantonspolizei_todesfall_kommandant_1.4641260.html&sl=de&tl=en&hl=&ie=UTF-8

Giovanni Zucchetti's picture

The hindsight bias in the Fiderer piece - he's written some excellent stuff prior to this pile of, well - drips off of every word.

Orly's picture

Hindsight bias?

Sorry, Joe, we're all out of crystal balls here.

I mean, what else do we have, a motion picture?  A home video by Hank Paulson; What I Did On My Autumn Vacation?

Don't be absurd.  The pieces are there and some are not there.  Some are there through induction and some are plain as day.  We have no choice but to try to put it back together as logically as we can.

taraxias's picture

Do you mind posting your CIA badge number?

trav7777's picture

There is a somewhat less sinister angle to the GS bailout.

AIG was, recall, an insurance company.  It has a variety of cash products and policies all over the world.  The BK code is written such that a CDS counterparty can move to seize collateral outside of the ability of a BK court to stay.

It may have been that GS was going to run and grab annuities, whole life policies, etc., and the only recourse was to pay them off.  In fact, AIG has significant business too in China and a worldwide cash grab of AIG's assets by its CDS counterparties would have been politically "intractable."

Assetman's picture

The Treasury could have struck a deal to spinoff AIGFP from the rest of the company BEFORE the USG got it's 80% ownership in order to quarantine the damage and negotiate the haircuts on the bad CDO's.

I'm sure a team of of investment bankers (those few who were left) would have loved to craft a last minute deal.

But no... an ex-Goldmanite and Treasury Secretary at the time couldn't stand for that at all.

I'm not discounting your angle, though, because it certainly is plausible.

trav7777's picture

Yes. That is absolutely what the Treasury could have done, but they should have done lots of things, none of which they did do.

GS has infested the Treasury with legions of people beholden to it and its interests.  That's the fundamental problem.  The freakin SecTreas at the time was their gd'd former CEO...how much more of a conflict of interest could be had?

AIGFP should have been sequestered under emergency power and GS brought to collapse.  Or the insurance regulators should have stepped in and shut AIG down and within their powers to have sequestered the insurance assets of the company or declared AIG to be in violation of something and resolved to isolate AIGFP from the rest of the company.

I and a lot of people like me KNEW GS was in up to its freaking eyeballs and we were short it...it was days from collapse like all the other IBs.

People should read through that Davis CDO and take a look and imagine how many hours went into generating that bullshit.  The freaking assets contained in that CDO didn't even NEED to be real!  There was a provision permitting freaking synthetic debt, which is effectively tranches of CDS payment streams.  IOW, debt and payments based upon nothing.

These mfers spent their time engineering mountains of bullshit and we act like they are God's gift to the world.  We don't need investment banking; it's a goddamned scam.

Shut them ALL down.  It's either going to end up being an Andrew Jackson or a Hitler that rids the nation of these crooks. The choice is ours in which direction this goes.

Ruth's picture

Most certainly agree traveler, nice number by the way. 

Assetman's picture

Thanks for the reply... and GREAT post.  I couldn't agree with you more.

SABTrader's picture

Rule number one of investing is:

NEVER INVEST IN ANYTHING YOU DON'T UNDERSTAND.

Dumb people allowed this mess to evolve because they never practised rule number one. Instead they listened to the salesman that said "It's rated AAA so there's no need to read the fine print".

I believe they are clever obfuscators and I wonder how much they paid Moodys to get that AAA rating.

Ned Zeppelin's picture

I'll take a wild guess that seizing the assets of an affiliated but nonetheless completely separate company in the AIG org chart would not have been possible, even under the bankruptcy law exception to the normal prohibitions on self-help or collection efforts after the automatic stay is imposed. 

trav7777's picture

AIG the parent was already posting cash collateral...where u suppose they got it from?

GS already had the money that AIG siphoned off its dependent businesses.  So, IOW, GS was holding all those Chinese whole-life policies.

What should have happened is that GS was nationalized and dismantled.

Miles Kendig's picture

Ned, I may be mistaken here, but I remember reviewing work that uncovered documentation between AIG and its state supervised insurance subsidiaries obligating them to cover any shortfalls the parent company may encounter.  These requirements being at the heart of the supposed need to bail out the firm from a state perspective and this is the reasoning why the New York State Insurance Commissioner at the time, Mr. Dinallo said he felt constrained to allow AIG to borrow funds from its state subs...  If I find my link I'll put it up for you.

waterdog's picture

The collusion is well documented. The examples in the post were for the benefit of us lesser knowledgeable readers. The examples are not the story. The Goldman people are smart enough to know that the rest of us are stupid.

Goldman getting caught is God's work.

 

Anonymous's picture

which means if they wanted to go down...be broken up etc...it would be the ultimate way to cover up all their misdeeds...close the book and start over....with gains only king midas could comprehend

Anonymous's picture

Financial institutions rated AA or better don't post collateral on derivatives? I stopped reading after I read that, a completely inaccurate statement.

Anonymous's picture

Goldman are not geniuses, but they are dominating our government. They are gangsters, and they should be prosecuted under RICO then tried for treason against the United States of America.

Giovanni Zucchetti's picture

They, GS, had 5.9 billion of AIG flesh in hand prior to the Fed intervention.  Prior to the Fed intervention, they were demanding 2.5 billion more. SIGTARP had a discussion about 4.3 - which I have gone back and forth about. 

So it looks like they were saying, give us 8.4 (or maybe 9.6), and we'll call it quits.

14.0 - 8.4 = 5.6 (ML III)

Orly's picture

Awesome article.  The mist is beginning to take a shape and form that is logical and exposes human nature through details of personality.

That's when we know we're getting close.

Keep up the great work!  We really appreciate it.

:D

buzzsaw99's picture

We know what they did, we also have a long list of those who are above the law. Goldman Sachs is #1 on that list.

Anonymous's picture

Who gives a fuck anymore. All I hear is. Waaah waaaah. We are fucked. No one in this administration is listening. They openly commit fraud. Just vote republican Or indepent and get these crooks out of office.

Anonymous's picture

This all happened under Republicans you moron.

Anonymous's picture

Exactly. The only republicans worth voting for are republicans that operate outside the sanction of the Party leadership, which is corrupt and stands for nothing.

Democrats, on the other hand, aren't worth voting for under any circumstances.

bugs_'s picture

But we still don't know all the counterparties

that were made whole or close to whole.  That

is the big story.

Anonymous's picture

The more I think about this the easier it becomes to understand it.

CDO 's = real estate.

CDS's = bet against real estate. That's it.

A CDO is to oil what a
CDS is to a oil futures contract.

Why did some banks get it so right well others got it so wrong? Those banks were walked into this dark unknown murky market.

If you can gets you hands of a copy of TIME magazine dated Sept, special edition with Hank Paulson, (one month before the crash) It has totaly different meaning today. Hank is even quoted

" we looked over the derivatives markets, but managed to skip CDO's. "

how could he manage to skip CDO's when his old firm is bet 2 to 1 against them. Goldman had half their capital up on these trades.

but thanks to TIME, the public already getting their first lesson on what a CDO is>>>

Patrick

Handle with care's picture

For me the really interesting part is not the claim that Goldman were really smart and gamed out the whole thing in advance, but that when the SHTF they used their connections in the government to get themselves out of it.

 

So Paulson appointing Liddy and Liddy immediately handing out money it seems he didn't have to is the big corruption story.

 

Surely shareholders have a case against Liddy if its true he didn't negotiate to the best of his ability for the benefit of AIG and made payments to another company of which he is a shareholder that didn't need to be made?  Isn't the second part at least criminal?

trav7777's picture

This is the unvarnished truth. GS used its connections, including its previous CEO now SecTreas to make itself whole.

Plus they were sitting on a bunch of life insurance cash policies posted by AIG and playing Merchant of Venice.

GS was balls-deep like everyone else and days away from collapse

hound dog vigilante's picture

Folks have to demonstrate real outrage here...

 

FWD this story to your senators and congresspersons.

 

Link this story anywhere it is relevant.  The charade is unravelling... help pull the string.

 

The internet is the trump card that TPTB did not count on and cannot control.  Readers here have FAR more power than they (we) realize here and now...

Seal's picture

This will have to end up as a political discussion with the big Zero hisself, David Axelrod and Rahm about WHO will have to do some time. Count on it. Unfortunately, the Fed has destroyed all their docs already and is probably untouchable.

ShankyS's picture

If this is true, I want to puke. If not, CBS can pick it up and make a good mini-series out of it.

Anonymous's picture

re John Self:

The very heart of the article is the thesis that Goldman did not become insolvent exactly because of their choice of their largest client, non-insurer-regulated AIGFP for virtually all their CDS protection. And since when did really, really smart guys not go bankrupt? Happens regularly. LTCM, anyone? Nobel prizes not a token of "really,really smart"?

Isidious: Proceeding in a subtle way but with harmful effects: That is exactly how the minor shifts in collateral on 'safe' AAA securities CDS should be labelled when, out of nowhere, the collateral calls become very large, and with no market to correctly evaluate the demands.

That's why, one assumes, the example was called "simplified." Are you assuming bankruptcy?

Joe Sixpack's picture

Nobel prizes not a token of "really,really smart"?

Let's see:

 

1. Al Gore got one;

2. Barack Obama got one;

 

I report. You decide.

MarketTruth's picture

Are you there yet?

 

Are you ready to finally pull out all your funds from banks?

 

Sell off all stocks/trades?

 

Perhaps even go on a labor strike with your co-workers and picket your State government?

 

Or are you just sitting there like a good sheeple?

 

"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen."
-- Samuel Adams, speech at the Philadelphia State House, August 1, 1776.