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Did Goldman's CFO Lie To The Investing Public On September 16, 2008?
Following on the earlier article posted on Bloomberg discussing how the NY Fed singlehandedly (and secretly) made the decision to defraud taxpayers out of tens of billions when deciding that AIG counterparties would be made whole with no incipient haircuts, Janet Tavakoli submits the following:
“There’s no way they should have paid at par,” she says. “AIG was basically bankrupt.”
Citigroup Inc. agreed last year to accept about 60 cents on the dollar from New York-based bond insurer Ambac Financial Group Inc. to retire protection on a $1.4 billion CDO.
JT Note: It is a strong statement to say that a CFO lied to the public, and in my opinion, David Vinear, Goldman Sach’s CFO lied about Goldman’s exposure to AIG while the AIG bailout was in progress in September 2008. Viniar spoke about risk management, but that is a separate issue from whether or not Goldman Sachs would have money at risk due to its direct business with AIG. Goldman Sachs would have been out billions of dollars in collateral had a bankruptcy-like settlement been negotiated with AIG, and that is material.
This is what David Vinear said during his Sept 16, 2008 investor conference call:
David Viniar - The Goldman Sachs Group, Inc. - EVP, CFO Sure. Without giving exact numbers, let me just tell you how we think about this. AIG and Lehman, big important financial institution counterparties to Goldman Sachs. We did and we do a lot of business with both of them, as we do with all other major financial institutions. The way we do business with financial institutions is by having appropriate daily margin terms. That is how we are able to do the volume of business with each other that we do. And that goes for AIG, Lehman, and also Morgan Stanley, and JPMorgan, and Citi, and UBS, and Credit Suisse. That is how we manage our risk. In addition to the margin terms, we augment our risk management with appropriate hedging strategies. You heard at the beginning of my remarks that we believe one of the biggest challenges we have is to avoid large concentrated exposures; and we took that very much into account in managing our credit exposures to Lehman and to AIG, as well as we do with any other financial institution. Given that, what I would tell you is given the outcome at Lehman and whatever the outcome at AIG, I would expect the direct impact of our credit exposure to both of them to be immaterial to our results.
We leave the question open of whether or not there were any 10(b)-5 violations by David Viniar. Of course, as the SEC is the ultimate arbiter here, we fail to see how even if consensus is that Goldman did in fact mislead the investing public, there will be any adverse (or any, for that matter) action against Goldman Sachs. Alternatively, it begs the question: how much longer will the riskfree hedge fund formerly known as Goldman Sachs take for granted the fact that no matter what risk exposure it has, if the shit hits the fan it will forever and always be bailed out by its cronies at the Federal Reserve?
Below is a full copy of Goldman's September 16th, 2008 conference call.
hat tip McDrunkenDaddy
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Epic Fail! I'm sure the SEC will be all over this.
This is why I go crazy with the "Refresh" button whenever I'm on this site. Great analysis as usual, JT.
"It's not a lie if you believe it" - G Costanza
if a lie is told that no one heard, is it a lie?
Epic Fail is right.Giant material lie, breathtakingly so.
Who says it's a lie? How do you daytraders know they hadn't hedged their c/p exposure?
If Goldman says it, it's no a lie (in a Nixon stylie)
Vinear said he would expect the outcome from AIG to immaterial. Of course he would expect the Fed to step in and protect Goldman, and they did. His expectations came true. Going forward, don't you expect the Fed to always bail-out Goldman?
lol....you beat me to the trigger....my thoughts
exactly.....you have to know how to parse
bullshit...
Yes ....but....
S ecure
E mployees
C ompensation
in the future....
Always gets in the way of justice....
The SEC will never work as long as there is no
work time guaranteed from SEC to corp. jobs....
There needs to be a 5 year minimum waiting period
regarding "crossing over" and incestual mingling....
The concoction ? American Style Fascism
What America has .....RIGHT NOW ....
Lord Blankfein could disembowel a busload of orphans on live TV and our Federal Government wouldn't lift a finger. GS is untouchable.
oh yes they would lift a finger - they would
offer sand paper and lye so the kids could wash up
before being disemboweled....
David Viniar
2008 Total Compensation: $36.6 million
Union College grad, liar, crook.
Ah ha! Another example of "TRUTHINESS" in contemporary conversation.
The Vampire Squid legal team will be glad to perform a literary autopsy on the transcript and CLEARLY SHOW how everything described was true.
Those of us with ears who lack the ability to appreciate the intrinsic nuance of communication from C-level authorities will need an education in why the lie is really true.
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Just another example of how accountability has been sacrificed in order to earn the next dollar of profit. The logic these people use must go something like this: Lying isn't an ethical subject. Lying is a business strategy. So it's not a matter of doing the right or wrong thing -- it's a matter of executing your strategy efficiently and effectively.
Bygones dude ... What happened in Sept 08 stays in Sept 08.
Bygones dude ... What happened in Sept 08 stays in Sept 08.
See you at Lloyd's clambake in the spring? The whole crew will be there -maybe we'll have teaching moment with BO over brewskis.
"What happened in Sept 08 stays in Sept 08"
Of course it does. Thats the good thing about bills, they never have to be paid.
I don't think the Goldman CFO's comments were necessarily a lie, but they seem pretty disingenuous. When you hedge exposures to huge financial companies like Lehman and AIG that virtually every other sizable financial company has exposure to, how sure can you be that the counterparties on your AIG and Lehman hedges can pay off in the event of defaults?
This conference call took place pretty close to the time that Goldman was borrowing money from Warren Buffett on loan shark terms, a 10% coupon on preferred stock plus a huge pile of 5 year at the money warrants on the common stock.
The thing I've wondered about with Goldman and their AIG hedge is whether or not they got paid twice, once from the government passing it through AIG and the other from an event of default that triggered their CDS hedge (or puts on the stock or however else they were hedged). Was AIG being placed into government receivership treated as an event of default that triggered settlement of credit default swaps?
if 180b usd was being shoveled in the front door
of aig to the conveyor belt to gs out the back
door then it seems that there were direct credit
risks for which gs was being made whole...as such
i don't see how vinear's comments could be anything
but a lie when he denied having direct exposure...
maybe there are nuances here which i overlook
but the simplicity of the issue suggests
mendacity....
The comments of the Goldman CFO were on the September 16 conference call. The decision to pass government money through AIG to cover its derivatives obligation wasn't made by the New York Fed (i.e. Geithner) until early November. The analysts on the conference call wouldn't have cared about Goldman exposure to AIG if they had known the government would cover it.
You are a fool if you believe the decision to bail out the CDS trades for AIG was made in November. It was acted upon in November. There was never any question as to what would happen, only how and when. The decision was made in a small conference room in September 2008 by Geithner, Blankfein, Paulson and Bernanke. There are no notes of that meeting, no emails, no action items. But everyone knew what to do.
If that's the way we're going to play, you're a conspiracy mongering whack job if you think the CDS trades for AIG were worked out in mid September with everything else that was going on, a matter of days after the government put AIG into receivership and before they really understood what they were dealing with. Here's what some actual reporters who have looked into the issue said:
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7T5HaOgYHpE
Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps -- insurance-like contracts that backed soured collateralized-debt obligations.
Subprime Mortgages
CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.
Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.
The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.
Further down in the story was this:
Bloomberg News has filed a Freedom of Information Act request seeking copies of the term sheets related to AIG’s counterparty payments, along with e-mails and the logs of phone calls and meetings among Geithner, Friedman and other New York Fed and AIG officials. The request is pending.
Why don't you give Bloomberg a call and let them know what small conference room this was worked out in by Geithner, Blankfein, Paulson and Bernanke, the exact date and time the meeting place and how you know about it?
I just don't see how Goldman could have hedged it's $13bn exposure to AIG. Yes, it did have collateral calls, but AIG was a highly rated counterparty, so there would have been haircuts on the collateral. And there is no way that the CDS market would have sustained that amount of volume.
Conjecture, pure and simple conjecture.
You don't actually have a clue.
The cds market handled Lehman's default exceptionally well.
Your efforts to make this all sound like an effort in baseless speculation fall on deaf ears. Who's your report at Goldman? Tell them their PR effort is a waste of time - the most expensive perfume can't cover the stench of corruption and greed.
I enjoyed the article right up until, "Alternatively, it begs the question:..." Please navigate to http://begthequestion.info/ and learn that this statement is not "begging the question".
I feel like a real ass bringing it up, but if you're striving for top-tier journalism, you need to know the terms.
Ever the grammar asshat that I am, I appreciate this highlight. Even better, I love the site. Thanks for the link and the good laugh.
to answer the question of the headline, i can only ask, were his lips moving?
So very well said Tyler and McDrunken Daddy!!!!!!!
I have sent letters to the majority of senators and many representatives ever since the "secret" Saturday meeting at the Fed, all because the Lehman fail, AIG free money bonanza, and MS, GS bankholding status hurry up all smacked so clearly as a fraud and the biggest bankheist of all time!!! MS and GS were going down at the same rate as Lehman, and no one who isn't purging themselves can say that that is not true!!! And FOR SURE our country's treasury secretary and fed reserve chair knew clearly the win that Lehman's demise would be for all the affiliates and the prop desks of MS and GS...BIG BONANZA WIN! and enough to tide them over til the next big bankheist bonanza can happen resultant of paulson/bernake's three week marathon criminal lobby where they looked instead to be SELF-DEALING AND AS FIDUCIARIES OF THE US CITIZENS WOULDN'T THIS MAKE ONE WONDER IF THIS WAS INSTEAD TREASON?
here is one way to know for sure--do an Elliott Spitzer style subpoena of all trades outstanding prior to the LEH demise for MS and GS and all of their affiliates and subsidiaries, and look how much they benefited from the LEH trade...next, do a retroactive audit of these companies and see if they were solvent on SEPTth...VOILA
After that, realize that these crooks also blackmailed Lewis to pay 2X as much as he should have for MER--one more of raping and pillaging.
All part of the same criminal narrative. All lies, all the time. Lewis and Paulson - same story. AIG, Blankfein/Goldman and Paulson. Bernanke and Geithner too - all operating to serve the interests of the banksters. Not a conspiracy in the sense of Dr. Evil, more a comfortable association of amoral greedmongers who know nothing else but their world of money and power. Elites who firmly believe they are better than you, and in their natural right to act above the law. This is an old battle.