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Politics : Sioux Nation -- Ignore unavailable to you. Want to Upgrade?

To: Rock_nj who wrote (163476)	3/18/2009 4:57:41 AM
From: stockman_scott	Respond to of 361474

Goldman's share of AIG bailout money draws fire reuters.com Tue Mar 17, 2009 7:44pm EDT By Paritosh Bansal - Analysis NEW YORK (Reuters) - American International Group(AIG.N) funneled over $90 billion of taxpayer bailout funds to various U.S. and European banks, but the biggest beneficiary was politically connected Goldman Sachs Group Inc (GS.N). Suspicions of potential conflicts of interest and favoritism have been fueled by $12.9 billion AIG paid to Goldman Sachs -- where then-Treasury Secretary Henry Paulson had previously worked as chief executive -- in the months after the insurer was rescued by the government last September. Goldman, for its part, has insisted it did not need the bailout money because it was "always fully collateralized and hedged." Long Wall Street's largest investment bank before it recently became a bank holding company, Goldman answered a series of questions from Reuters about the bailout funds. "We can say that our notional exposure to AIG is a fraction of what it was at the time of the September bailout," Goldman spokesman Michael DuVally said. Asked why Goldman Sachs took $12.9 billion of taxpayer money if it was collateralized and hedged on its AIG positions, DuVally said it was because AIG was not allowed to fail, so Goldman did not get money from hedges that would have paid out if the insurer had collapsed. And, he said, under the terms of its contracts with AIG, Goldman was entitled to collateral. DuVally also said the bank does extensive due diligence on all its counterparties. How much Goldman and other counterparties received from AIG has been just one of several flashpoints over the taxpayer rescue of what was once the world's largest insurer. AIG has also infuriated politicians -- including U.S. President Barack Obama -- with its plan to pay $165 million in bonuses to employees at the unit at the heart of its problems. Still, the payments to counterparties like Goldman Sachs dwarfed the bonuses, and some experts contend that these companies should have been made to share some of the losses resulting from the giant insurance firm's near collapse. "People see that the guys that ruined AIG are getting paid more money, and that creates outrage," said Porter Stansberry, managing director of Stansberry & Associates Investment Research. "If you want to be outraged, be outraged that the counterparties got paid out full value." Goldman was not the only large bank with exposure to AIG. The list of counterparties that AIG disclosed on Sunday included others that got large sums. Goldman was followed by Societe Generale (SOGN.PA) with $11.9 billion, Deutsche Bank (DBKGn.DE) with $11.8 billion and Barclays PLC (BARC.L) with $8.5 billion. Moreover, the AIG disclosures are still incomplete in that they do not include payments to the banks since December 31. "We are looking at a small piece of it right here. So what is the total exposure? That's the question. And then the issue is, well, if that was wiped out what would it do to Goldman's capital?" said Campbell Harvey, a finance professor at Duke University. "It is obvious that firms underestimated the counterparty risk. That was their mistake," Harvey said. "Yet they are getting bailouts of U.S. taxpayer money. Why should we pay for their mistake?" In an editorial on Tuesday, the Wall Street Journal pointed to Goldman's claim that "all of its AIG bets were adequately hedged and that it needed no 'bailout.'" "Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts," the Journal said. The bailout has stirred resentment not just in the U.S. Congress, but on Wall Street, where investors have speculated that Goldman and its connections helped it get a better deal. In recent years, many former Goldman executives have moved into government. Paulson left Goldman in 2006 as chief executive. The chairman of the New York Federal Reserve is former Goldman Chairman Steve Friedman. "The person that should be subpoenaed is Hank Paulson. How do you go from running Goldman Sachs in '05 and '06 and making all of these bets with AIG's financial products unit and then end up in the government guaranteeing those bets and not have a conflict of interest?" Stansberry asked. DuVally said Goldman Sachs was not party to any discussions about the bailout of AIG. (Reporting by Paritosh Bansal; Additional reporting by Lilla Zuill and Kevin Drawbaugh; Editing by Gary Hill) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)

To: Rock_nj who wrote (163476)	3/20/2009 6:43:58 PM
From: stockman_scott	Respond to of 361474

Goldman Sachs Still has $6 Billion in AIG Exposure (Update1) By Christine Harper March 20 (Bloomberg) -- Goldman Sachs Group Inc. said today that it still has protection from American International Group Inc. on complex securities valued at about $6 billion that haven’t been settled yet by the insurer or the Federal Reserve. The bank, which received $12.9 billion from AIG between the government rescue of the insurer in September and the end of 2008, has about $4.4 billion in collateral that it could keep if AIG fails to meet commitments, said David Viniar, Goldman Sachs’s chief financial officer, on a conference call. Viniar said the company generally requires that counterparties post cash as collateral. Some of the $4.4 billion the company holds was posted after the government bailout, he said. When AIG was rescued by the Federal Reserve in September, New York-based Goldman Sachs had $10 billion of exposure to the insurance company that was offset with $7.5 billion of collateral as well as credit-default swaps that would have paid off in the event of an AIG bankruptcy, Viniar said. Because of the collateral and hedges, the company wasn’t willing to accept anything less than complete repayment from AIG, he said. “We were fully protected and didn’t have to take a loss,” Viniar said on the call. “We don’t think we did anything wrong. We had commercial terms, it is our responsibility to our shareholders to make sure that we are protecting ourselves.” Although Goldman Sachs said the company’s own trading agreements with AIG would have been protected if the company failed, Viniar said today that a default of AIG, once the world’s largest insurer, would have had wider implications. ‘No Direct Exposure’ “I am not saying that we would have been unaffected; I don’t think there is any company in the world that would have been unaffected by a failure of AIG because all of the world’s financial markets would have been affected,” he said. “We had no direct exposure, there would have been no losses vis a vis the contracts we had with AIG,” he added. Viniar also said it may have cost the firm money to replace the insurance that AIG provided to Goldman Sachs. “We could have replaced it, you can always replace transactions, there just would have been a cost,” he said. “So yes that probably would have been a cost to Goldman Sachs.” The Federal Reserve rescued AIG after banks including Goldman Sachs demanded collateral on contracts that overwhelmed the company’s capacity to pay. Even after the Fed negotiated to settle collateralized debt obligations covered by AIG, Goldman was unwilling to accept less than full payment, Viniar said. Synthetic Securities “From the very beginning that was going to be a par transaction because we were in the position of it being pretty clear we wouldn’t do things other than that,” he said. The Federal Reserve’s Maiden Lane III vehicle only settled contracts that insured against defaults on collateralized debt obligations backed by cash bonds. Viniar said the company’s remaining $6 billion exposure consists of so-called synthetic securities, or CDOs backed by derivatives. AIG paid about $50 billion to banks to cover its obligations on fixed-income contracts after the government rescue and about $44 billion to companies tied to its securities lending program. More than 20 banks received payments. In exchange for the cash, the banks turned over securities including mortgage-backed bonds that declined in value. Goldman Sachs also made a profit on the credit-default swaps it bought to hedge against an AIG failure even though the company was rescued by the government, which has helped it honor its obligations to Goldman Sachs and other counterparties, Viniar said. Viniar said Goldman Sachs bought the CDS protection from “large financial institutions” inside and outside the U.S. and had collateral against those exposures as well. “Net-net I would think we had a gain over the time,” he said of the CDS contracts. “I don’t think it was particularly material to Goldman Sachs but net-net I think we had a gain.” To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net. Last Updated: March 20, 2009 16:53 EDT