Flashback...
This is not without complexity. Let us go over what we know.
AIG has said they were negotiating "tear-ups" with counterparties at 50 cents on the dollar before the NY Fed told them to 'stand down' in negotiations with counterparties. 'Stand down' was the exact language from emails unearthed last week by Hugh Son of Bloomberg.
Goldman openly admits that they were willing to tear up contracts with AIG for the 'right price,' as you will see below.
But Goldman CEO Lloyd Blankfein told Angelides and the FCIC panel last week that they were 'never asked' by the the New York Fed negotiators, working on behalf of AIG, to accept any haircut, or less than 100 cents on the dollar.
The only logical conclusion is the following -- somebody's lying.
Either New York Fed officials lied to investigators and reporters when they said that they had worked for a week to extract haircuts from AIG counterparties.
OR
Goldman Sachs CEO Lloyd Blankfein was lying when he testified under oath that haircuts were never proposed by NY Fed negotiators.
Considering that Goldman has been forthright about the many discussions it had with AIG (pre-bailout) attempting to reach agreement on a tear-up price, it doesn't make sense for them to falsely claim that the NY Fed officials never asked them to take a haircut.
It sounds like Goldman Sachs just threw the New York Federal Reserve, or at least the portion devoted to managing the AIG bailout, squarely and directly in front of a 10-ton House Oversight committee bus, named ISSA.
The only problem with this, as I will be explaining later, is that the NY Fed, though guilty of malfeasance, is not the bank we should be focusing on, and Geithner is not the individual.
It's Goldman Sachs, Lloyd Blankfein, Ed Liddy, Dan Jester and the ringmaster, Henry Paulson. More coming.
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Jan. 26 (Bloomberg) -- Goldman Sachs Group Inc. was the most aggressive bank counterparty to American International Group Inc. before its bailout, demanding more collateral while assigning lower values to real estate assets backed by the insurer, documents obtained by lawmakers show.
A month before the September 2008 rescue, Goldman Sachs approached AIG about tearing up contracts protecting the bank against losses on collateralized debt obligations, or holdings backed by mortgages, according to a BlackRock Inc. presentation dated Nov. 5, 2008. Goldman Sachs was the only counterparty willing to cancel the credit-default swaps and bear the risk of further CDO losses, provided that AIG make payments based on the bank’s larger-than-average estimate of market declines.
“Goldman Sachs is the least risk-averse counterparty,” according to the presentation, which was prepared by the asset manager for AIG and later given to the Federal Reserve Bank of New York. The firm is “the only counterparty willing to tear up CDS with AIG at agreed-upon prices and retain CDO exposure.” The document was obtained by the Congressional panel scheduled to hold a hearing tomorrow on AIG’s $182.3 billion bailout.
The presentation offers the clearest picture yet of the negotiations between AIG and its counterparties before a rescue that fully reimbursed banks including Goldman Sachs for $62.1 billion in CDOs. The BlackRock materials indicate that Goldman Sachs, which has been pilloried by lawmakers for its dealings with AIG, may have been betting that the securities would rebound from the values it assigned to them.
“We had always made it clear that we were prepared to tear up contracts, it just had to be at the right price,” Lucas van Praag, a spokesman for Goldman Sachs in New York, said in an interview. “We’d had many discussions over a long period of time about doing it, I don’t know why BlackRock chose August” as a specific example.
BlackRock indicated that Goldman Sachs might be willing to accept less money than it was entitled to under its AIG contracts because the bank hadn’t received all of the collateral it requested.
“Because Goldman prices have been consistently lower than third-party prices, Goldman and AIG have negotiated a collateral posting protocol in which Goldman’s prices are given a 12 percent positive haircut for collateral posting,” the document says.
AIG posted about $6 billion in collateral to Goldman Sachs on the contracts before the bailout, according to the BlackRock document, a third of the sum that the insurer turned over to banks. Goldman Sachs’s bets accounted for about 22 percent of the assets insured by AIG through the swaps.
Goldman Sachs, the most profitable securities firm in Wall Street history, was allowed to keep collateral, including $2.5 billion posted after the bailout, and given $5.6 billion from Maiden Lane III in exchange for the CDOs in the deal to retire the swaps.
Goldman Sachs’s portfolio was expected to experience larger losses than the overall AIG portfolio because of so-called Alt-A residential mortgage-backed securities, BlackRock says in the document. While 38 percent of the assets covered by AIG’s agreement with Goldman Sachs were rated AAA, 25 percent were below investment grade, the document says.
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