[quote=SK in CV]
I’m not convinced there wasn’t any counterparty risk. Collecting on the CDSs would still have been GS claims against other creditors, not AIG. (Very possible that would cause those issuers to go bankrupt.) And there is still the issue of their claims over and above the collateral they held. I’ve seen nothing to indicate that everything in excess of that collateral would have been anything other than an unsecured debt.[/quote]
SK: Okay, now the debate has moved into what potentially might have happened, which is very different from what actually did happen.
Advancing the idea that Goldman’s collection on the CDS might have potentially triggered BK in the issuers is sheer speculation.
Yes, I agree with the government position that allowing AIG to go under would have triggered an exceptionally disorderly “unwinding” of positions across the world and the systemic crash which would have followed would have been catastrophic, but I’ve seen nothing to indicate that any of the CDS issuers were at risk here.
I guess my point is this, SK: We can go round and round about potential outcomes and various scenarios, but it would appear that Goldman was in a solid position (at least, that’s my take) and one that they had protected with cash, securities and insurance.
To argue that they were the recipient of a “bailout” or some back-room largesse on the part of the Fed is simply unsupported by the facts.
It would be interesting to game out what might have happened had the gubment and the Fed allowed the whole bubble to pop, but I think financial Armageddon would have ensued. I understand exactly what Bernanke means when he said that he held his nose as he performed the AIG rescue, but that it was ultimately necessary.
