Janet Tavakoli Submits:
Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses.
In late July 2008, SCA settled with Merrill for $500 million on $3.7 B of contracts, or around 13.5%. On August 1, 2008, Ambac settled $1.4 B with Citi for $850 million, or around 60% on the dollar, but unlike SCA and AIG, Ambac wasn’t on the brink of insolvency at the time. Calyon, a French bank also involved in AIG’s transactions, settled similar contracts with FGIC, another bond insurer, for only ten cents on the dollar in August 2008, yet $13.9 billion of Goldman’s contracts with AIG were settled for 100 cents on the dollar in November 2008 via purchases by Maiden Lane III. Ambac recently settled similar credit default swaps for ten cents on the dollar ($5 billion in contracts for around $500 million) as Ambac needed capital, and MBIA has made deeply discounted settlements.
This link provides two examples of Goldman’s value-destroying securitizations that were protected by AIG. (You will have to enlarge the image after clicking, and the document is a bit awkward.) The first section shows the collateral of Abacus 2005-2 (Goldman underwrote and bought protection) and Davis Square Funding IV (Goldman underwrote this CDO, and Societe General bought protection from AIG against it).
Among the many shards of glass masquerading as gems, you will find Tourmaline CDO 2005-1, which went into acceleration in April 2008. It was managed by Blackrock. Perhaps the Fed’s theory in handing out no bid contracts to Blackrock has something to do with the diligence displayed by a fox watching a hen house.
Parts of tranches of the CDOs that were protected by AIG ended up as collateral of CDOs against which MBIA and Ambac sold protection (to their regret). This serves to illustrate the interconnectedness of value destroying CDOs.
More from Janet, courtesy of Fox Business News: