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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (297399)	3/20/2009 5:34:33 PM
From: Brian Sullivan	Respond to of 793964

Goldman rejected settling of AIG trades at discount CEO Blankfein had no meetings with Paulson about problems at insurer: CFO (MarketWatch) -- Goldman Sachs Group rejected overtures from American International Group to settle trades with the troubled insurer at a discount, instead holding the company to the letter of its contracts, the investment bank's chief financial officer said Friday. CFO David Viniar also said that Chief Executive Lloyd Blankfein had no meetings with former Treasury Secretary Henry Paulson about AIG. Goldman and other large firms that were counterparties to AIG have come under criticism in recent weeks because a lot of the government money that was initially loaned to the insurer was paid back out to these trading partners. See full story. AIG almost collapsed in September after credit rating downgrades made it impossible for the insurer to meet obligations on derivative-based contracts it had sold to protect against losses on complex mortgage-related securities known as collateralized debt obligations, or CDOs. The government gave AIG an emergency $85 billion loan and the bailout has since ballooned to more than $170 billion. Goldman was one of AIG's largest counterparties partly because it had purchased protection against losses on CDOs from the insurer. Speaking on a conference call with reporters Friday, Viniar said that Goldman began to significantly mark down its Super Senior CDO risk in July 2007, resulting in valuation disputes with AIG. The investment bank demanded that the insurer post more and more collateral over the following year. "Over subsequent weeks and months, we continued to make calls as the market deteriorated," he added. Viniar was asked if Goldman Sachs felt any guilt about its possible contribution to AIG's collapse. "All we did was call for what was due to us under the contracts. So you know, I don't think there's any guilt whatsoever," he said. '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. That's why we enter into these contracts.' — Goldman Sachs CFO David Viniar "We don't think we did anything wrong," Viniar continued, explaining that "we had commercial terms. It is our responsibility to our shareholders to make sure that we are protecting ourselves. That's why we enter into these contracts. That's why we have terms in the first place, to make sure that we are protected." As part of that protection, Goldman also apparently made trades that allowed it to profit from deterioration in AIG's financial strength -- likely based on those collateral calls. Viniar acknowledged Friday that Goldman profited from AIG's woes. When asked if the firm made gains over the course of AIG's deterioration, he said: "Net-net, I would think we had a gain over the time. I don't think it was particularly material to Goldman Sachs. But net-net, I think we had a gain. I think that gain probably somewhat more than offset the bid-offer spread that we had to pay to put the CDS hedges on." No Paulson meetings Goldman's involvement with AIG has been scrutinized more than other firms, partly because Paulson ran the investment bank before he became Treasury Secretary. The New York Times and other news organizations have reported that Blankfein, Goldman's current CEO, met with regulators including Paulson in early September to discuss troubles at Lehman Brothers and AIG. Bloomberg News reported that Blankfein was the only chief executive at a meeting Sept. 15 at the New York Federal Reserve Bank at which the troubles at AIG were discussed, although representatives of other firms were present. Bloomberg cited an unidentified Federal Reserve spokesman. However, on Friday, Viniar said Blankfein and Paulson never met to discuss AIG. "As far as I know, there were no meetings with Lloyd and Hank Paulson," Viniar said, according to a transcript of the conference call. "I think Lloyd has said that. So that's what I would say." Later on in the conference call, Viniar was asked whether Goldman contributed anything to how AIG was rescued or restructured. Viniar said, "no." No significant economic exposure Viniar also stressed that Goldman was and remains protected. He added that the firm would not have lost money from specific derivatives contracts with AIG had the insurer failed, rather than being rescued by the government. "We have stated consistently that Goldman Sachs did not have a significant economic exposure to AIG. AIG's disclosure of cash flows to counterparties does not in any way contradict that statement," Viniar told reporters. "We had commercial contracts with AIG. We entered into these contracts on commercial terms. We were fully hedged with either credit default swaps or collateral, so we were not in a position to take a loss," Viniar said. He noted that Goldman continues to hold a bit more than $4 billion in collateral, supporting a roughly $6 billion open trading position with AIG. The readers comments are great marketwatch.com

To: LindyBill who wrote (297399)	3/20/2009 7:00:59 PM
From: Hank Scorpio	1 Recommendation Read Replies (1) \| Respond to of 793964

The CBO is pricing in a Republican lead Congress in 2010. :^)))

To: LindyBill who wrote (297399)	3/20/2009 9:10:47 PM
From: KLP	Read Replies (1) \| Respond to of 793964

Bloomberg: CBO: US deficit ballooning to record $1.7 trillion [KLP note: Bloomberg says $1.85 Billion, and WaPo says 1.08Billion but with numbers like these, what’s another Thousand Million or two…or another Billion or two slipped in someplace] Higher forecast will complicate Obama's bid to push spending plans through Congress. features.csmonitor.com By Ron Scherer \| Staff writer of The Christian Science Monitor/ March 20, 2009 edition New York The US budget deficit is turning a deeper shade of red. On Friday, the Congressional Budget Office (CBO) said this year’s budget deficit is now nearly $1.7 trillion, more than $400 billion larger than it forecast two months ago. Next year’s deficit will be nearly $1.1 trillion, $430 billion more than its prior forecast. And that doesn’t count President Obama’s budget plans to cut taxes and increase spending. Although the deepening recession is partly to blame for the increase, the nonpartisan CBO says the increases are largely due to the sharp rise in spending (think fiscal stimulus package) and the higher cost of saving the financial system. Political firestorm The report immediately generated a firestorm of comment in Washington. Republicans said the new numbers ““should serve as a wake-up call” to the administration.” The President’s press secretary, Robert Gibbs, countered that the new numbers would not affect the administration’s effort to cut the budget deficit in half by the end of his first term. However, some independent budget experts say the sharply rising deficit will change the political context for Mr. Obama’s agenda. “It will be much more difficult to reform health care, move on the energy front and invest in education,” said Isabel Sawhill, senior fellow at the Brookings Institution in Washington and a former official at the Office of Management and Budget (OMB) in the Clinton administration. “It makes his whole reinvestment agenda much more problematic, especially if there is not something done to curb entitlement spending in Social Security and Medicare.” Toward a postwar record The changes in the deficit forecast means the deficit as a share of the US economy is much higher. Two months ago, the CBO estimated the deficit would be 8.4 percent of gross domestic product (GDP). It has now raised that estimate to 11.9 percent, the highest level since World War II. Next year, the budget gap will be 7.9 percent of GDP, up from a prior estimate of 4.9 percent, the CBO said. “We’re in a bad situation and it’s only going to get worse,” says Roberton Williams, a senior fellow at the tax policy center at the Urban Institute in Washington. Part of the problem is the recession. The CBO estimates that America’s GDP will shrink by 1.5 percent this year but grow by 4.1 percent next year as the bulk of the government stimulus package kicks in. So this year, revenues will fall by $50 billion. But even with the recovery next year, by 2019, it estimates the gap in revenues will grow to $259 billion. “They are projecting things get worse on the revenue side,” says Mr. Williams, who used to work at OMB. The OMB estimates on the revenue side might even be optimistic, says Williams since it assumes that all of President Bush’s tax cuts will disappear. “That won’t happen,” he predicts. “Obama has already said he won’t raise taxes for most taxpayers, just the top 5 percent.” Capitol Hill response The CBO news touched off a barrage of press releases and finger-pointing. On the Republican side, House Republican leader John Boehner (R) of Ohio called the report a “wake-up” call. “We simply cannot continue to mortgage our children and grandchildren’s future to pay for bigger and more costly government,” he said in a statement Friday. However, Rep. John Spratt (D) of South Carolina and the ranking member of the budget committee, blamed the Bush administration for leaving the economy “in distress” and already deeply in debt. “The Bush deficits will overhang the budget for years to come,” he said in a statement. A decade of high debt No matter who is to blame, the CBO issued yet one more sobering statistic: By 2019, the cost of servicing America’s debt will be $450 billion a year. “That assumes a very low interest rate,” says Williams. “If our creditors lose confidence or demand a higher interest rate that number could rise rapidly.” Congress has yet to tackle the major entitlements, Social Security and Medicare. “They currently make up 42 percent of the budget and they are growing rapidly,” Ms. Sawhill says. “In just two to three decades, they will be absorbing all our current revenues. So it’s imperative to address the issue now.”