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Subpoenaed Documents Show Goldman Sachs Offered to ‘Tear Up’ AIG Derivatives Contracts at ‘Right Price’ Before NY Fed Took Over Negotiations

Subpoenaed Documents Show Goldman Sachs Offered to ‘Tear Up’ AIG Derivatives Contracts at ‘Right Price’ Before NY Fed Took Over Negotiations

Courtesy of The Daily Bail

Henry Paulson


This is not without complexity.  Let us go over what we know.

AIG has said they were negotiating "tear-ups" with counterparties at 50 cents on the dollar before the NY Fed told them to ‘stand down’ in negotiations with counterparties.  ‘Stand down’ was the exact language from emails unearthed last week by Hugh Son of Bloomberg.

Goldman openly admits that they were willing to tear up contracts with AIG for the ‘right price,’ as you will see below.

But Goldman CEO Lloyd Blankfein told Angelides and the FCIC panel last week that they were ‘never asked’ by the the New York Fed negotiators, working on behalf of AIG, to accept any haircut, or less than 100 cents on the dollar.

The only logical conclusion is the following — somebody’s lying. 

Either New York Fed officials lied to investigators and reporters when they said that they had worked for a week to extract haircuts from AIG counterparties.


Goldman Sachs CEO Lloyd Blankfein was lying when he testified under oath that haircuts were never proposed by NY Fed negotiators.

Considering that Goldman has been forthright about the many discussions it had with AIG (pre-bailout) attempting to reach agreement on a tear-up price, it doesn’t make sense for them to falsely claim that the NY Fed officials never asked them to take a haircut.

It sounds like Goldman Sachs just threw the New York Federal Reserve, or at least the portion devoted to managing the AIG bailout, squarely and directly in front of a 10-ton House Oversight committee bus, named ISSA.

The only problem with this, as I will be explaining later, is that the NY Fed, though guilty of malfeasance, is not the bank we should be focusing on, and Geithner is not the individual.

It’s Goldman Sachs, Lloyd Blankfein, Ed Liddy, Dan Jester and the ringmaster, Henry Paulson.  More coming.


(Reprinted with permission)

From Bloomberg

Jan. 26 (Bloomberg) — Goldman Sachs Group Inc. was the most aggressive bank counterparty to American International Group Inc. before its bailout, demanding more collateral while assigning lower values to real estate assets backed by the insurer, documents obtained by lawmakers show.

A month before the September 2008 rescue, Goldman Sachs approached AIG about tearing up contracts protecting the bank against losses on collateralized debt obligations, or holdings backed by mortgages, according to a BlackRock Inc. presentation dated Nov. 5, 2008. Goldman Sachs was the only counterparty willing to cancel the credit-default swaps and bear the risk of further CDO losses, provided that AIG make payments based on the bank’s larger-than-average estimate of market declines.

“Goldman Sachs is the least risk-averse counterparty,” according to the presentation, which was prepared by the asset manager for AIG and later given to the Federal Reserve Bank of New York. The firm is “the only counterparty willing to tear up CDS with AIG at agreed-upon prices and retain CDO exposure.” The document was obtained by the Congressional panel scheduled to hold a hearing tomorrow on AIG’s $182.3 billion bailout.

The presentation offers the clearest picture yet of the negotiations between AIG and its counterparties before a rescue that fully reimbursed banks including Goldman Sachs for $62.1 billion in CDOs. The BlackRock materials indicate that Goldman Sachs, which has been pilloried by lawmakers for its dealings with AIG, may have been betting that the securities would rebound from the values it assigned to them.

‘Many Discussions’

“We had always made it clear that we were prepared to tear up contracts, it just had to be at the right price,” Lucas van Praag, a spokesman for Goldman Sachs in New York, said in an interview. “We’d had many discussions over a long period of time about doing it, I don’t know why BlackRock chose August” as a specific example.

Goldman Sachs, which created securities tied to home loans and serviced debt on residential properties, “would have had a very decent view of what the underlying mortgage bonds were and what they thought they were worth,” said Thomas J. Adams, a partner at law firm at Paykin Krieg & Adams LLP in New York.

The Treasury Department has said that Maiden Lane III, the taxpayer-backed vehicle that bought banks’ CDOs starting in November 2008, will probably be profitable because New York- based AIG has already taken most of the losses on the assets. Maiden Lane III assets surged 14 percent to $23.5 billion in the six months ended Sept. 30, after falling in the first quarter of 2009, according to data from the regulator.

‘Fairly Realistic’

“Goldman was not Pollyanna on what the underlying mortgage bonds were worth,” said Adams, who was a senior managing director in charge of the CDO business at FGIC Corp. from 2006 to 2008. “They were fairly realistic.”…

No Haircut

The New York Fed used the BlackRock document to inform negotiations with AIG’s counterparties, according to Deborah Kilroe, a spokeswoman for the regulator.

The BlackRock “analysis was consistent with our efforts to secure concessions from AIG’s counterparties, which, as has been widely reported, they were ultimately unwilling to do,” she said.

BlackRock indicated that Goldman Sachs might be willing to accept less money than it was entitled to under its AIG contracts because the bank hadn’t received all of the collateral it requested.

Goldman Sachs’s van Praag said the firm was never open to anything less than full repayment and that it never indicated otherwise to BlackRock. Bobbie Collins, a spokeswoman for BlackRock, declined to comment on the document, as did Mark Herr, a spokesman for AIG.

‘Backdoor Bailout’

“We categorically never had discussions with BlackRock about making concessions or taking a haircut,” van Praag said.

Lawmakers have since said the taxpayer-funded payments from Maiden Lane III amounted to a “backdoor bailout” because the banks were fully reimbursed for the CDOs, rather than accepting a discounted price based on plummeting asset values. AIG’S former chief executive officer, Maurice “Hank” Greenberg, has gone as far as to publicly blame Goldman Sachs for AIG’s woes…

Full article here. >>


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