Has Goldman fatally damaged their Franchise?

[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.

[SK in CV]

[quote=Allan from Fallbrook]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.[/quote]

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.

[SK in CV]

[quote=Allan from Fallbrook]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.[/quote]

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.

[SK in CV]

[quote=Allan from Fallbrook]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.[/quote]

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.

[SK in CV]

[quote=Allan from Fallbrook]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.[/quote]

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.

[SK in CV]

[quote=Allan from Fallbrook]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.[/quote]

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.

[Allan from Fallbrook]

[quote=briansd1]
And we’ll see who supports financial reform and who doesn’t.[/quote]

Brian: Speaking of those who DON’T support reform (in its present iteration): From HuffPost:
http://www.huffingtonpost.com/2010/04/20/exclusive-dem-insiders-ec_n_544187.html

So? What’s your take on this? An article in Huffington Post about the toothlessness of the present bill and not a GOPer in the bunch.

[Allan from Fallbrook]

[quote=briansd1]
And we’ll see who supports financial reform and who doesn’t.[/quote]

Brian: Speaking of those who DON’T support reform (in its present iteration): From HuffPost:
http://www.huffingtonpost.com/2010/04/20/exclusive-dem-insiders-ec_n_544187.html

So? What’s your take on this? An article in Huffington Post about the toothlessness of the present bill and not a GOPer in the bunch.

[Allan from Fallbrook]

[quote=briansd1]
And we’ll see who supports financial reform and who doesn’t.[/quote]

Brian: Speaking of those who DON’T support reform (in its present iteration): From HuffPost:
http://www.huffingtonpost.com/2010/04/20/exclusive-dem-insiders-ec_n_544187.html

So? What’s your take on this? An article in Huffington Post about the toothlessness of the present bill and not a GOPer in the bunch.

[Allan from Fallbrook]

[quote=briansd1]
And we’ll see who supports financial reform and who doesn’t.[/quote]

Brian: Speaking of those who DON’T support reform (in its present iteration): From HuffPost:
http://www.huffingtonpost.com/2010/04/20/exclusive-dem-insiders-ec_n_544187.html

So? What’s your take on this? An article in Huffington Post about the toothlessness of the present bill and not a GOPer in the bunch.

[Allan from Fallbrook]

[quote=briansd1]
And we’ll see who supports financial reform and who doesn’t.[/quote]

Brian: Speaking of those who DON’T support reform (in its present iteration): From HuffPost:
http://www.huffingtonpost.com/2010/04/20/exclusive-dem-insiders-ec_n_544187.html

So? What’s your take on this? An article in Huffington Post about the toothlessness of the present bill and not a GOPer in the bunch.

[briansd1]

Allan, I didn’t follow the AIG case closely but my previous understanding was that GS was paid nearly $13 billiout of the government bailout.

I stand corrected.

But since you know, what is the breakdown of the nearly $13 Billion?
– cash
– securities. Which securities?

Upon a quick search here is what I found:

By the time of the A.I.G. bailout in mid-September, he said that Goldman held $7.5 billion in collateral from A.I.G. and had hedged the remaining $2.5 billion of its $10 billion net exposure using credit-default swaps with other parties. Goldman’s overall position with A.I.G., or the “notional” value of the contracts, was about $20 billion, he said.

After the rescue, Goldman received an additional $2.6 billion in collateral from A.I.G.

In mid-November, Goldman also sold $5.6 billion in securities related to the swaps at full value to a government-backed vehicle that had been created to help unwind A.I.G.’s ill-fated trades.

[briansd1]

Allan, I didn’t follow the AIG case closely but my previous understanding was that GS was paid nearly $13 billiout of the government bailout.

I stand corrected.

But since you know, what is the breakdown of the nearly $13 Billion?
– cash
– securities. Which securities?

Upon a quick search here is what I found:

By the time of the A.I.G. bailout in mid-September, he said that Goldman held $7.5 billion in collateral from A.I.G. and had hedged the remaining $2.5 billion of its $10 billion net exposure using credit-default swaps with other parties. Goldman’s overall position with A.I.G., or the “notional” value of the contracts, was about $20 billion, he said.

After the rescue, Goldman received an additional $2.6 billion in collateral from A.I.G.

In mid-November, Goldman also sold $5.6 billion in securities related to the swaps at full value to a government-backed vehicle that had been created to help unwind A.I.G.’s ill-fated trades.

[briansd1]

Allan, I didn’t follow the AIG case closely but my previous understanding was that GS was paid nearly $13 billiout of the government bailout.

I stand corrected.

But since you know, what is the breakdown of the nearly $13 Billion?
– cash
– securities. Which securities?

Upon a quick search here is what I found:

By the time of the A.I.G. bailout in mid-September, he said that Goldman held $7.5 billion in collateral from A.I.G. and had hedged the remaining $2.5 billion of its $10 billion net exposure using credit-default swaps with other parties. Goldman’s overall position with A.I.G., or the “notional” value of the contracts, was about $20 billion, he said.

After the rescue, Goldman received an additional $2.6 billion in collateral from A.I.G.

In mid-November, Goldman also sold $5.6 billion in securities related to the swaps at full value to a government-backed vehicle that had been created to help unwind A.I.G.’s ill-fated trades.

[briansd1]

Allan, I didn’t follow the AIG case closely but my previous understanding was that GS was paid nearly $13 billiout of the government bailout.

I stand corrected.

But since you know, what is the breakdown of the nearly $13 Billion?
– cash
– securities. Which securities?

Upon a quick search here is what I found:

By the time of the A.I.G. bailout in mid-September, he said that Goldman held $7.5 billion in collateral from A.I.G. and had hedged the remaining $2.5 billion of its $10 billion net exposure using credit-default swaps with other parties. Goldman’s overall position with A.I.G., or the “notional” value of the contracts, was about $20 billion, he said.

After the rescue, Goldman received an additional $2.6 billion in collateral from A.I.G.

In mid-November, Goldman also sold $5.6 billion in securities related to the swaps at full value to a government-backed vehicle that had been created to help unwind A.I.G.’s ill-fated trades.

[Author]

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