Has Goldman fatally damaged their Franchise?

[Arraya]

These stories just leave us fainthearted
As we sink into criminality uncharted;
The horror perverse
Just keep getting worse,
And we know, we’ve only just started.

http://theautomaticearth.blogspot.com/
There’s some curious things about that SEC case, like who’s actually charged with what. There’s no Jonathan Egol, Fabrice Tourre’s partner at Goldman, no hedge funder John Paulson, no Goldman CEO Lloyd Blankfein. Instead, the only person the SEC names -far as I’ve seen- is Fabrice Tourre, who, at the time the Abacus deal involved played, was all of 28 years old.

That age thing keeps on itching me. It somehow points to the degree of involvement of the likes of Blankfein, Goldman president Gary Cohn and CFO David Viniar. These guys don’t let a mere kid play with billions of their capital without keeping a close watch. They were all down there on the trade floor for extended periods of time, figuring out what exactly transpired, as can be proven.

Moreover, the then (2006-7) 28-year old Tourre was claiming something that was the 180 degree opposite of what other traders at Goldman had a lot of the firms’ money invested in, namely the continued upward growth of the housing market. Tourre’s contrary claims were nothing short of revolutionary, certainly in the eyes of the older, and more bullish, traders. So it should not come as a surprise that the highest echelons of the firm spent a lot of time with Tourre and other traders. They would have been mad not to. That also means, however, that claiming they didn’t know what was going on is not believable

If after all that, Blankfein, Cohn and Viniar still didn’t know what went on, they should be fired on the spot by the shareholders. If they did know, which is faaaar more likely (you don’t get to the GS top spots by being complete doofuses), they should be prosecuted to the full extent of the law. Which is where Cuomo should come in, but, yes, he’s campaigning… So maybe right now would be an appropriate moment to check out where his campaign donations stem from. We might just find some juice.

[Allan from Fallbrook]

[quote=briansd1]Allan, despite the technical details, the $13 billion paid to GS came from AIG.

Had AIG been allowed to collapse, there would not have been any money to pay GS. GS would have had to line up in court like everybody else.

*

Lawsuits take on lives of their own sometimes. It’ll take about a decade to resolve them all.

[/quote]

Brian: Wrong. Pure and simple. Goldman was holding IN THEIR POSSESSION nearly $11Bn of AIG CASH AND SECURITIES. Had AIG NOT paid them, Goldman would have simply KEPT those same cash and securities. Nothing technical or esoteric about it.

I know you find facts bothersome and don’t like to answer pointed questions, but, in this case, it is extremely straightforward.

[Allan from Fallbrook]

[quote=briansd1]Allan, despite the technical details, the $13 billion paid to GS came from AIG.

Had AIG been allowed to collapse, there would not have been any money to pay GS. GS would have had to line up in court like everybody else.

*

Lawsuits take on lives of their own sometimes. It’ll take about a decade to resolve them all.

[/quote]

Brian: Wrong. Pure and simple. Goldman was holding IN THEIR POSSESSION nearly $11Bn of AIG CASH AND SECURITIES. Had AIG NOT paid them, Goldman would have simply KEPT those same cash and securities. Nothing technical or esoteric about it.

I know you find facts bothersome and don’t like to answer pointed questions, but, in this case, it is extremely straightforward.

[Allan from Fallbrook]

[quote=briansd1]Allan, despite the technical details, the $13 billion paid to GS came from AIG.

Had AIG been allowed to collapse, there would not have been any money to pay GS. GS would have had to line up in court like everybody else.

*

Lawsuits take on lives of their own sometimes. It’ll take about a decade to resolve them all.

[/quote]

Brian: Wrong. Pure and simple. Goldman was holding IN THEIR POSSESSION nearly $11Bn of AIG CASH AND SECURITIES. Had AIG NOT paid them, Goldman would have simply KEPT those same cash and securities. Nothing technical or esoteric about it.

I know you find facts bothersome and don’t like to answer pointed questions, but, in this case, it is extremely straightforward.

[Allan from Fallbrook]

[quote=briansd1]Allan, despite the technical details, the $13 billion paid to GS came from AIG.

Had AIG been allowed to collapse, there would not have been any money to pay GS. GS would have had to line up in court like everybody else.

*

Lawsuits take on lives of their own sometimes. It’ll take about a decade to resolve them all.

[/quote]

Brian: Wrong. Pure and simple. Goldman was holding IN THEIR POSSESSION nearly $11Bn of AIG CASH AND SECURITIES. Had AIG NOT paid them, Goldman would have simply KEPT those same cash and securities. Nothing technical or esoteric about it.

I know you find facts bothersome and don’t like to answer pointed questions, but, in this case, it is extremely straightforward.

[Allan from Fallbrook]

[quote=briansd1]Allan, despite the technical details, the $13 billion paid to GS came from AIG.

Had AIG been allowed to collapse, there would not have been any money to pay GS. GS would have had to line up in court like everybody else.

*

Lawsuits take on lives of their own sometimes. It’ll take about a decade to resolve them all.

[/quote]

Brian: Wrong. Pure and simple. Goldman was holding IN THEIR POSSESSION nearly $11Bn of AIG CASH AND SECURITIES. Had AIG NOT paid them, Goldman would have simply KEPT those same cash and securities. Nothing technical or esoteric about it.

I know you find facts bothersome and don’t like to answer pointed questions, but, in this case, it is extremely straightforward.

[SK in CV]

[quote=Allan from Fallbrook]
Again, the key point is counterparty risk and the fact is that Goldman had no such risk with AIG. Using the conventional notion of a BK “clawback” is totally incorrect and completely misses the point and creates a risk where there was none. Thus my use of the term “gibberish”, which I reserve for people who don’t know what they’re talking about.[/quote]

I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.

[SK in CV]

[quote=Allan from Fallbrook]
Again, the key point is counterparty risk and the fact is that Goldman had no such risk with AIG. Using the conventional notion of a BK “clawback” is totally incorrect and completely misses the point and creates a risk where there was none. Thus my use of the term “gibberish”, which I reserve for people who don’t know what they’re talking about.[/quote]

I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.

[SK in CV]

[quote=Allan from Fallbrook]
Again, the key point is counterparty risk and the fact is that Goldman had no such risk with AIG. Using the conventional notion of a BK “clawback” is totally incorrect and completely misses the point and creates a risk where there was none. Thus my use of the term “gibberish”, which I reserve for people who don’t know what they’re talking about.[/quote]

I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.

[SK in CV]

[quote=Allan from Fallbrook]
Again, the key point is counterparty risk and the fact is that Goldman had no such risk with AIG. Using the conventional notion of a BK “clawback” is totally incorrect and completely misses the point and creates a risk where there was none. Thus my use of the term “gibberish”, which I reserve for people who don’t know what they’re talking about.[/quote]

I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.

[SK in CV]

[quote=Allan from Fallbrook]
Again, the key point is counterparty risk and the fact is that Goldman had no such risk with AIG. Using the conventional notion of a BK “clawback” is totally incorrect and completely misses the point and creates a risk where there was none. Thus my use of the term “gibberish”, which I reserve for people who don’t know what they’re talking about.[/quote]

I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.

[Allan from Fallbrook]

[quote=SK in CV]
I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.[/quote]

SK: I don’t disagree with anything you’ve said, but I will point out that we’re dealing with a difference in terminology.

I was told that the total amount was $11.9Bn, of which some $10Bn (approx) was held as “collateral” (not the conventional form of collateral, either, in that “collateral” in this sense is both different contractually and in how it is used in the securities business), with the other $2Bn (approx) being held in CDS with parties other than AIG. I would also argue that credit default swaps, while close to insurance as you and I understand insurance, is still different and largely due to the way they perform and the trigger mechanism for their execution and payment.

So, in terms of counterparty risk between AIG and Goldman, I think its safe to say that there wasn’t any and I think we can also dispel the notion that Goldman would have gone hat in hand along with the other creditors had AIG gone boom. Given that they were already holding AIG cash and securities (a point Brian seems unable to comprehend) and also given that they would have gone to parties other than AIG to collect on the CDS, the notion of secured versus unsecured debts within the venue of BK becomes moot.

[Allan from Fallbrook]

[quote=SK in CV]
I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.[/quote]

SK: I don’t disagree with anything you’ve said, but I will point out that we’re dealing with a difference in terminology.

I was told that the total amount was $11.9Bn, of which some $10Bn (approx) was held as “collateral” (not the conventional form of collateral, either, in that “collateral” in this sense is both different contractually and in how it is used in the securities business), with the other $2Bn (approx) being held in CDS with parties other than AIG. I would also argue that credit default swaps, while close to insurance as you and I understand insurance, is still different and largely due to the way they perform and the trigger mechanism for their execution and payment.

So, in terms of counterparty risk between AIG and Goldman, I think its safe to say that there wasn’t any and I think we can also dispel the notion that Goldman would have gone hat in hand along with the other creditors had AIG gone boom. Given that they were already holding AIG cash and securities (a point Brian seems unable to comprehend) and also given that they would have gone to parties other than AIG to collect on the CDS, the notion of secured versus unsecured debts within the venue of BK becomes moot.

[Allan from Fallbrook]

[quote=SK in CV]
I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.[/quote]

SK: I don’t disagree with anything you’ve said, but I will point out that we’re dealing with a difference in terminology.

I was told that the total amount was $11.9Bn, of which some $10Bn (approx) was held as “collateral” (not the conventional form of collateral, either, in that “collateral” in this sense is both different contractually and in how it is used in the securities business), with the other $2Bn (approx) being held in CDS with parties other than AIG. I would also argue that credit default swaps, while close to insurance as you and I understand insurance, is still different and largely due to the way they perform and the trigger mechanism for their execution and payment.

So, in terms of counterparty risk between AIG and Goldman, I think its safe to say that there wasn’t any and I think we can also dispel the notion that Goldman would have gone hat in hand along with the other creditors had AIG gone boom. Given that they were already holding AIG cash and securities (a point Brian seems unable to comprehend) and also given that they would have gone to parties other than AIG to collect on the CDS, the notion of secured versus unsecured debts within the venue of BK becomes moot.

[Allan from Fallbrook]

[quote=SK in CV]
I don’t know the precise details of AIG’s debt to GS. I’ve seen enough references to counterparty debt being involved to dismiss it as a total non-issue, though the quantity is certainly unknown. As an example both verifying some of what you say and conflicting with some of it…

A brief recap of the Goldman-AIG story is necessary. Goldman has revealed that it had $20 billion in trades on with AIG, where it had bought protection on various toxic assets from AIG . Goldman believed this translated into $10 billion of risk to AIG, meaning that the mortgage assets might be worth as little as 50%. Against this $10 billion of AIG risk, Goldman had $7.5 billion in collateral from AIG. The rest of the risk, $2.5 billion, was hedged with Credit Default Swaps, whereby Goldman bought protection on AIG from a variety of highly rated banks. Goldman felt it was well-hedged, thus the repeated claim that it was not at risk if AIG defaulted.

from http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html

(note also the conflict as to the amount of the collateral)

Another problem, as eluded to yesterday, is that the current fraud charges against GS may directly affect what the value of the GS claims against AIG should have been. If there was fraud with regards to GS and it’s investors, that fraud could conceivably extend to it’s purchase of insurance products from AIG. The “protection on various toxic assets” referred to above, despite your claim otherwise, is close enough to insurance to be insurance. If X happens, we pay you Y. In either case, it’s a contractual obligation to pay upon the occurence of specified events. If any of it was related to the same assets, then collecting on the hedge could lead to civil fraud charges by AIG.

Having spent way too many years working in the bankruptcy courts, it is something I’m familiar with. There is secured debt. There is unsecured debt. And all kinds of levels, security, and collateral for each. All debt has to fall into one of those categories. Other than the collateral they held, I don’t see how any of it would be anything but unsecured debt.[/quote]

SK: I don’t disagree with anything you’ve said, but I will point out that we’re dealing with a difference in terminology.

I was told that the total amount was $11.9Bn, of which some $10Bn (approx) was held as “collateral” (not the conventional form of collateral, either, in that “collateral” in this sense is both different contractually and in how it is used in the securities business), with the other $2Bn (approx) being held in CDS with parties other than AIG. I would also argue that credit default swaps, while close to insurance as you and I understand insurance, is still different and largely due to the way they perform and the trigger mechanism for their execution and payment.

So, in terms of counterparty risk between AIG and Goldman, I think its safe to say that there wasn’t any and I think we can also dispel the notion that Goldman would have gone hat in hand along with the other creditors had AIG gone boom. Given that they were already holding AIG cash and securities (a point Brian seems unable to comprehend) and also given that they would have gone to parties other than AIG to collect on the CDS, the notion of secured versus unsecured debts within the venue of BK becomes moot.

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