Market Overview

The Goldman Sachs/AIG Saga

While many accounts have been written about the extremely 'shady' dealings which Goldman Sachs has/had with AIG – which led directly to AIG's $180 billion bail-out – unless I've missed it, one of the key issues has been soft-pedaled and another has been ignored altogether. These two topics which I intend to discuss are a) that Goldman Sachs used AIG as its financial 'toilet'; and b) that Goldman Sachs had begun openly and deliberately misrepresenting assets/investments to investors starting in 2006 or 2007 – at a time when all the other banker-oligarchs were continuing to assert their “mark to model” valuations both publicly and privately.


I'm basing my analysis on two, other accounts of the Goldman/AIG relationship: one by New York Times' columnist by Gretchen Morgenson, and one a more recent piece by “an attorney and former monoline executive”.


The first issue has been alluded to by others, but never in blunt terms. Essentially, as the bankster-created U.S. housing-bubble progressed, Goldman Sachs discovered that AIG was so eager and aggressive to “cash in” on what it perceived to be a bankster gold-mine that it would write-up insurance on anything – irrespective of whether its own personnel had any genuine understanding of what they were writing up.


Thus, Goldman Sachs began to take the worst of its financial-feces to AIG, in order to get AIG to write-up “credit default swaps” on the “assets” in question. For those still not familiar with some of the bankster jargon, a credit-default swap is a form of “insurance” used specifically to insure against the risk of default on debt instruments.


As a brief aside, it has been suggested by myself and others that much of the CDS “industry” was simply a sham: writing up phony “insurance” for these assets which was never intended to be relied upon. These phony insurance contracts would then allow the banksters to pretend they had reduced their “risk” - which would, in turn allow them to leverage their mountains of paper to even more obscene levels. That issue is not relevant to the Goldman/AIG relationship, since it is clear that at least one of the parties (Goldman Sachs) took these CDS contracts very seriously.


Indeed, as Goldman found the greedy-but-gullible “bankers” at AIG would insure anything they brought to them, some time in 2006 or 2007 their intent on entering into these agreements changed. Originally, like the other banksters, they entered into these CDS contracts purely for “risk management”. However, as Goldman Sachs began to aggressively short the various “assets” of the U.S. housing bubble, instead of having AIG write-up CDS contracts as protection, Goldman had its housing shorts duping AIG to enter into these CDS contracts – for the specific purpose of making huge, windfall profits when those CDS contracts “blew up”.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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