Has Goldman fatally damaged their Franchise?

[Allan from Fallbrook]

SK: Except, in this instance, that is not how collateral works. In this instance, Goldman was well within their rights to step in and seize the collateral and not have to wait in line. The point is somewhat nuanced, but we’re not dealing with “secured” and “collateral” in the commercially accepted sense of the words. Again, while I’m not a fan of Goldman, I understand how this particular counterparty arrangement works and they would have been (legally) able to step and assert their ownership, regardless of where AIG was on the BK continuum.

UCGal: I haven’t read Lincoln’s proposition, but I’m generally supportive of more and better regulation of derivative products, including CDOs, CDSs, CMOs and all the rest of these very arcane financial instruments.

I have a solid background in corporate finance and accounting and understanding the ins and outs of many of these products is extremely difficult even with my background.

I don’t know if you followed the AIG debacle at all, but the government agency responsible for keeping an eye on AIG was OTS (Office of Thrift Supervision). To say that this agency was a really, REALLY poor choice is to understate it magnificently. Moreoever, during Congressional hearings on AIG, the government itself was unsure as to what agency had oversight and enforcement responsbilities (see NPR article on same: http://www.npr.org/templates/story/story.php?storyId=104979546).

Speaking of derivatives and understanding them: If you have some time and feel like overtaxing your brain cells, read “Traders, Guns and Money” by Das. This is one of the best books on derivatives out there and by a master of the products.

[SK in CV]

[quote=Allan from Fallbrook]SK: Except, in this instance, that is not how collateral works. In this instance, Goldman was well within their rights to step in and seize the collateral and not have to wait in line. [/quote]

Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.

[SK in CV]

[quote=Allan from Fallbrook]SK: Except, in this instance, that is not how collateral works. In this instance, Goldman was well within their rights to step in and seize the collateral and not have to wait in line. [/quote]

Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.

[SK in CV]

[quote=Allan from Fallbrook]SK: Except, in this instance, that is not how collateral works. In this instance, Goldman was well within their rights to step in and seize the collateral and not have to wait in line. [/quote]

Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.

[SK in CV]

[quote=Allan from Fallbrook]SK: Except, in this instance, that is not how collateral works. In this instance, Goldman was well within their rights to step in and seize the collateral and not have to wait in line. [/quote]

Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.

[SK in CV]

[quote=Allan from Fallbrook]SK: Except, in this instance, that is not how collateral works. In this instance, Goldman was well within their rights to step in and seize the collateral and not have to wait in line. [/quote]

Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.

[Allan from Fallbrook]

[quote=SK in CV]
Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.[/quote]

SK: Sure. As was explained to me from my buddy, the former Bear alum, Goldman had zero counterparty exposure to AIG, in spite of the $12.9Bn they were paid through TARP.

The reason for this is two-fold: Nearly $11Bn of the AIG position was collateralized through cash and securities that Goldman already held (on behalf of AIG). Further, the remaining $2Bn (approx) was insured through credit default swaps (CDS), so, even if AIG collapsed, the insurance would cover the balance. Simply put, if they hadn’t been paid through TARP, Goldman would have just retained the “collateral” they were already holding as security to cover the majority of the position and then collected the insurance for the balance.

So, your understanding and mine regarding “collateral” is largely driven by the commercial definition of the word, which differs nearly completely from “collateral” in this instance.

Much has been made of the Goldman Sachs “payoff” from TARP, but the truth is not nearly as exciting. Again, not to say they’re not a bunch of shitty sleazebags, just not in this instance. Speaking of Taibbi: Yeah, I did read the Rolling Stone article, but it was riven with factual inaccuracies. I understand the need to sell copy, but Taibbi is too willing (IMHO) to veer off into the fanciful or reckless to make his point.

[Allan from Fallbrook]

[quote=SK in CV]
Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.[/quote]

SK: Sure. As was explained to me from my buddy, the former Bear alum, Goldman had zero counterparty exposure to AIG, in spite of the $12.9Bn they were paid through TARP.

The reason for this is two-fold: Nearly $11Bn of the AIG position was collateralized through cash and securities that Goldman already held (on behalf of AIG). Further, the remaining $2Bn (approx) was insured through credit default swaps (CDS), so, even if AIG collapsed, the insurance would cover the balance. Simply put, if they hadn’t been paid through TARP, Goldman would have just retained the “collateral” they were already holding as security to cover the majority of the position and then collected the insurance for the balance.

So, your understanding and mine regarding “collateral” is largely driven by the commercial definition of the word, which differs nearly completely from “collateral” in this instance.

Much has been made of the Goldman Sachs “payoff” from TARP, but the truth is not nearly as exciting. Again, not to say they’re not a bunch of shitty sleazebags, just not in this instance. Speaking of Taibbi: Yeah, I did read the Rolling Stone article, but it was riven with factual inaccuracies. I understand the need to sell copy, but Taibbi is too willing (IMHO) to veer off into the fanciful or reckless to make his point.

[Allan from Fallbrook]

[quote=SK in CV]
Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.[/quote]

SK: Sure. As was explained to me from my buddy, the former Bear alum, Goldman had zero counterparty exposure to AIG, in spite of the $12.9Bn they were paid through TARP.

The reason for this is two-fold: Nearly $11Bn of the AIG position was collateralized through cash and securities that Goldman already held (on behalf of AIG). Further, the remaining $2Bn (approx) was insured through credit default swaps (CDS), so, even if AIG collapsed, the insurance would cover the balance. Simply put, if they hadn’t been paid through TARP, Goldman would have just retained the “collateral” they were already holding as security to cover the majority of the position and then collected the insurance for the balance.

So, your understanding and mine regarding “collateral” is largely driven by the commercial definition of the word, which differs nearly completely from “collateral” in this instance.

Much has been made of the Goldman Sachs “payoff” from TARP, but the truth is not nearly as exciting. Again, not to say they’re not a bunch of shitty sleazebags, just not in this instance. Speaking of Taibbi: Yeah, I did read the Rolling Stone article, but it was riven with factual inaccuracies. I understand the need to sell copy, but Taibbi is too willing (IMHO) to veer off into the fanciful or reckless to make his point.

[Allan from Fallbrook]

[quote=SK in CV]
Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.[/quote]

SK: Sure. As was explained to me from my buddy, the former Bear alum, Goldman had zero counterparty exposure to AIG, in spite of the $12.9Bn they were paid through TARP.

The reason for this is two-fold: Nearly $11Bn of the AIG position was collateralized through cash and securities that Goldman already held (on behalf of AIG). Further, the remaining $2Bn (approx) was insured through credit default swaps (CDS), so, even if AIG collapsed, the insurance would cover the balance. Simply put, if they hadn’t been paid through TARP, Goldman would have just retained the “collateral” they were already holding as security to cover the majority of the position and then collected the insurance for the balance.

So, your understanding and mine regarding “collateral” is largely driven by the commercial definition of the word, which differs nearly completely from “collateral” in this instance.

Much has been made of the Goldman Sachs “payoff” from TARP, but the truth is not nearly as exciting. Again, not to say they’re not a bunch of shitty sleazebags, just not in this instance. Speaking of Taibbi: Yeah, I did read the Rolling Stone article, but it was riven with factual inaccuracies. I understand the need to sell copy, but Taibbi is too willing (IMHO) to veer off into the fanciful or reckless to make his point.

[Allan from Fallbrook]

[quote=SK in CV]
Can you give a quick explanation on this? Thinking it through, it makes sense that the collateral wouldn’t be the impaired assets, but I don’t understand how counter-parties to the contract would have anything other than an uncollateralized obligation. What assets exactly would they be asserting their ownership? They certainly didn’t have the right to sieze the TARP money.[/quote]

SK: Sure. As was explained to me from my buddy, the former Bear alum, Goldman had zero counterparty exposure to AIG, in spite of the $12.9Bn they were paid through TARP.

The reason for this is two-fold: Nearly $11Bn of the AIG position was collateralized through cash and securities that Goldman already held (on behalf of AIG). Further, the remaining $2Bn (approx) was insured through credit default swaps (CDS), so, even if AIG collapsed, the insurance would cover the balance. Simply put, if they hadn’t been paid through TARP, Goldman would have just retained the “collateral” they were already holding as security to cover the majority of the position and then collected the insurance for the balance.

So, your understanding and mine regarding “collateral” is largely driven by the commercial definition of the word, which differs nearly completely from “collateral” in this instance.

Much has been made of the Goldman Sachs “payoff” from TARP, but the truth is not nearly as exciting. Again, not to say they’re not a bunch of shitty sleazebags, just not in this instance. Speaking of Taibbi: Yeah, I did read the Rolling Stone article, but it was riven with factual inaccuracies. I understand the need to sell copy, but Taibbi is too willing (IMHO) to veer off into the fanciful or reckless to make his point.

[Arraya]

http://www.oftwominds.com/blogapr10/vampire-squid-piranhas04-10.html
Vampire Squid, Meet Ravenous Piranhas, 4/19/10.
There is even a slight chance that the Democratic leadership prompted this precise timing to light a fire under reluctant Republican senators to pass some sort of gutted, weak, sure-to-be-unenforced “financial reform.” Once again, for purposes of political theatre, it is important for the Democrats to pass a simulacrum “reform” of Wall Street to appease the frightfully hot public anger at the craven obedience of the political class to the whims and wishes of the big banks and Wall Street.
Meanwhile, as the Republicans claim to have their fingers on “the pulse of Middle America,” their Wall Street-soiled fingers are actually clasped on the cold wrist of the corpse of their own credibility. Resisting bank/financial reform, even a watered-down version, will eviscerate what little credibility the Repubs have left after lording over the destruction of the U.S. economy and their despicable rewarding of Wall Street for eight dreadful years (2001-2008).
In other words, both parties desperately need some political theatre to mask their enslavement to Wall Street and the big banks. This SEC action fits the bill very nicely, along with calling a few incredibly wealthy former CEOs up to Congress for a public flaying.

[Arraya]

http://www.oftwominds.com/blogapr10/vampire-squid-piranhas04-10.html
Vampire Squid, Meet Ravenous Piranhas, 4/19/10.
There is even a slight chance that the Democratic leadership prompted this precise timing to light a fire under reluctant Republican senators to pass some sort of gutted, weak, sure-to-be-unenforced “financial reform.” Once again, for purposes of political theatre, it is important for the Democrats to pass a simulacrum “reform” of Wall Street to appease the frightfully hot public anger at the craven obedience of the political class to the whims and wishes of the big banks and Wall Street.
Meanwhile, as the Republicans claim to have their fingers on “the pulse of Middle America,” their Wall Street-soiled fingers are actually clasped on the cold wrist of the corpse of their own credibility. Resisting bank/financial reform, even a watered-down version, will eviscerate what little credibility the Repubs have left after lording over the destruction of the U.S. economy and their despicable rewarding of Wall Street for eight dreadful years (2001-2008).
In other words, both parties desperately need some political theatre to mask their enslavement to Wall Street and the big banks. This SEC action fits the bill very nicely, along with calling a few incredibly wealthy former CEOs up to Congress for a public flaying.

[Arraya]

http://www.oftwominds.com/blogapr10/vampire-squid-piranhas04-10.html
Vampire Squid, Meet Ravenous Piranhas, 4/19/10.
There is even a slight chance that the Democratic leadership prompted this precise timing to light a fire under reluctant Republican senators to pass some sort of gutted, weak, sure-to-be-unenforced “financial reform.” Once again, for purposes of political theatre, it is important for the Democrats to pass a simulacrum “reform” of Wall Street to appease the frightfully hot public anger at the craven obedience of the political class to the whims and wishes of the big banks and Wall Street.
Meanwhile, as the Republicans claim to have their fingers on “the pulse of Middle America,” their Wall Street-soiled fingers are actually clasped on the cold wrist of the corpse of their own credibility. Resisting bank/financial reform, even a watered-down version, will eviscerate what little credibility the Repubs have left after lording over the destruction of the U.S. economy and their despicable rewarding of Wall Street for eight dreadful years (2001-2008).
In other words, both parties desperately need some political theatre to mask their enslavement to Wall Street and the big banks. This SEC action fits the bill very nicely, along with calling a few incredibly wealthy former CEOs up to Congress for a public flaying.

[Arraya]

http://www.oftwominds.com/blogapr10/vampire-squid-piranhas04-10.html
Vampire Squid, Meet Ravenous Piranhas, 4/19/10.
There is even a slight chance that the Democratic leadership prompted this precise timing to light a fire under reluctant Republican senators to pass some sort of gutted, weak, sure-to-be-unenforced “financial reform.” Once again, for purposes of political theatre, it is important for the Democrats to pass a simulacrum “reform” of Wall Street to appease the frightfully hot public anger at the craven obedience of the political class to the whims and wishes of the big banks and Wall Street.
Meanwhile, as the Republicans claim to have their fingers on “the pulse of Middle America,” their Wall Street-soiled fingers are actually clasped on the cold wrist of the corpse of their own credibility. Resisting bank/financial reform, even a watered-down version, will eviscerate what little credibility the Repubs have left after lording over the destruction of the U.S. economy and their despicable rewarding of Wall Street for eight dreadful years (2001-2008).
In other words, both parties desperately need some political theatre to mask their enslavement to Wall Street and the big banks. This SEC action fits the bill very nicely, along with calling a few incredibly wealthy former CEOs up to Congress for a public flaying.

[Author]

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