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