Goldman Lied About The AIG Slide?

Per the Times, documents released by Congress suggest that, contrary to their prior assertions, Goldman Sachs had not purchased enough protection by way of credit default swaps to fully protect themselves against an AIG default.

Since the United States government stepped in to rescue the American International Group in the fall of 2008, Goldman Sachs has maintained that it would have faced few if any losses had the insurer failed. Though it was the insurer’s biggest trading partner, Goldman contended that it had bought credit insurance from financial institutions that would have protected it, but it declined to identify the institutions.

...According to the document, Goldman held a total of $1.7 billion in insurance on A.I.G. from almost 90 institutions. Its exposure to A.I.G. at that time was $2.6 billion.

The Times includes links to the Goldman documents (which include a plaintive "Confidential Treatment Requested" stamp in the upper left). 

The summary of the Goldman positions in AIG credit protection raises a new question - since they bought $10.95 billion of protection but sold $9.24 billion, timing is everything.  Is there any chance Goldman had turned into big sellers of AIG protections just before the government bail-out was announced?  They were well-positioned to know which way the wind was blowing, and may have profited hugely from front-running the bail-out.

Comments

[And they're Whitewashing like it's Black all week long over there.]

Someone on a climate blog pointed out this $550.000.000 fine of Goldman's and I said that the fine was so paltry because it was over a matter of much less moment than climate.
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[MarkO]

Goldman would never do that.

[Melinda Romanoff]

GS knows that for every $1.00 spent on Capitol Hill, it pays off to the tune of $22,000.

That's an easy Risk/Reward challenge.

I couldn't imagine how this worked out to their advantage so easily.

[anduril]

Interesting article at WaPo today: A">http://www.realclearpolitics.com/articles/2010/07/24/a_responsible_economic_approach.html">A British Model for America. It appears that Cameron's philosophy is similar in some important respects to that of Chris Christie, who seems to be embracing some version of the principle of subsidiarity.

[narciso the harpoon]

Well we'll see about Cameron, who sold out tried and true Tory values and lost out a solid majority victory. The Journal article
on Cassano, yesterday seems to be a whole lot of doubletalk, trying to absolve him as X.O
of the good ship AIG

[Melinda Romanoff]

narciso-

Cassano was the original scapegoat, but was not responsible at all for their problems. The securities lending business is what blew them up.

We can open school on this but you can start here.

[Present, accounted for, and alert.]

School on Saturday? What is this, the National Guard?
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[OK, fallout and police the area. Cook's cryin' for help, too.]

The market will fluctuate. Forgot that, didn't they?
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[Melinda Romanoff]

Can I do this a bit later, Kim?

I have some errands to run (and shower, PajamasMedia is a creed in this house, not a business.).

[Why they put the last one there in charge of the kitchen I never figured out.]

Pots and Pans was always my favorite.
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[cathyf]

Just to give a little perspective, a billion-dollar gap is a hard lump to smallow, but far from catastrophe. For example, in 1997 the Brits created a new tax on dividends, which had the mostly-ignored side effect of transferring wealth directly from people short calls and/or long puts to people long calls and/or short puts. My group in the bank (not the whole bank) swallowed hard and took an £80 million charge. About $120 million -- that $900 million that we're talking about at Goldman is not even a full order of magnitude larger.

That was an unnoticed and probably completely unintended effect, and it in no way threatened the survival of the bank, let alone systemic risk to the global banking system...

[glasater]

...in 1997 the Brits created a new tax on dividends, which had the mostly-ignored side effect of transferring wealth directly from people short calls and/or long puts to people long calls and/or short puts

Ya think some brilliant child won't figure this sort of thing happening again down the road and take advantage?

[Old Lurker]

Interesting, Cathy.

[MTF]

The exit question Maguire asks is a great question I haven't seen asked anywhere else, and, if he is right, could be the ultimate insider trading prosecution. What did the Treasury tell banks, during the ramp up to the bail out? How much of those confidential regulatory discussions were communicated to the trading floor, as Goldman managers sought to answer Treasury's queries with real-time market knowledge? probably a great deal.

The money question: did traders act on this knowledge? Did they actually, suddenly, start unwinding positions in anticipation of the "socialization of risk"? When the government intervened, previously "crazy risk" suddenly became profitable (ie, unhedged AIG exposure) and "smart trades" (ie, hedged exposure) became unprofitable, or at least much less profitable.

This might be the most inciteful question yet asked, and I for one would love to hear Goldman answer Maguire.

[matt]

point is that even the top management at the major institutions didn't have a friggin clue on the dangers of the financial instruments they were inventing and trading.Everyone thought that everyone else knew what they were doing when in fact no one really knew.

The fallacy at the center of the crisis was that no one had gamed the different scenarios for the various instruments, the "what if's".

That should have been Moody's or S&P's or even someone the SEC appointed's job, but when the SEC went to Congress for this authority, they were denied it under pressure from Wall Street. It was systemic and widespread irresponsibility and unbridled greed that drove this bus over the cliff.

[Ignatz]

--point is that even the top management at the major institutions didn't have a friggin clue on the dangers of the financial instruments they were inventing and trading--

Is that true matt? Not saying it isn't; I just don't know if it is. It's possible they only considered one at a time going bad and didn't consider the systemic risk if they all did, but considering they were premised on ever rising RE prices hard to see how they didn't factor in a popped bubble, especially since they had all just participated in the internet bubble only a few short years before.
Even in my lowly, specialized and sequestered little niche of RE I could see the coming scythe in 2005 and 2006.
Why couldn't they?
Presumably as you say; greed.
There are none so blind as those who will not see.

[Melinda Romanoff]

Ig-

Management at these firms knew way more than they are letting on.

Why do you think it took Anton Valukas two years to put on paper the magic words "Repo 105"? Because people like Dick Fuld hid it out of fear of culpability.

Fraud is fraud the world 'round.

[jpe]

Per Morgenson - quite possibly the biggest hack in business journalism - Goldman would lost $100 million on a $10 billion-or-so exposure.

That's not quite a rounding error, but it's fairly close.