Why Goldman is golden

by Eric on March 19, 2009

I believe this week’s drama over the AIG bonuses is a diversion. It’s meant to distract from the unveiling of AIG’s counterparties. The media and some Washington demagogues got Americans all fired up over $165 million in executive bonuses. This sum is a little less than 1/1000th of the bailout money AIG has received so far. But it makes for good television.

Far more distressing is the question of how AIG has used the rest of the bailout money. I don’t feel like spending a lot of time on this. You can see the links below for elaboration. The short version is that Americans had to cough up to pay off AIG’s debts to foreign banks and Wall Street firms.

Exhibit A:  AIG Counterparties

So why did Americans have to pay for this? Weren’t we told that the whole world economy would implode if we didn’t save AIG? Why couldn’t AIG just file for bankruptcy like any other insolvent firm?

I believe it’s because they owed the wrong folks – namely well-connected Goldman Sachs.

Exhibit B: http://abcnews.go.com/Blotter/Blotter/story?id=5891663

If AIG were allowed to go bankrupt, Goldman and others likely wouldn’t get all their money. By saving AIG, the government effectively made it a conduit to transfer hundreds of billions of dollars from taxpayers to foreign banks and Wall Street firms.

For more elaboration, see these:

http://www.slate.com/id/2213942/

http://www.slate.com/id/2214076/

One more thing: why was bankruptcy ok for Lehman brothers, but all the other big boys required rescue? The line you hear from the media and from Washington is that there was no political will to save Lehman. Everyone was bailout weary and someone had to be made an example. I’m not so sure that’s the real story.

Exhibit C: http://www.thedeal.com/dealscape/images/Lehman_show_case_doc-3776.pdf

This lists Lehman’s top 30 creditors. Goldman is nowhere to be found.

I’d like to see a study on price movement of stocks of the largest corporate contributors to winning Presidential campaigns. My hypothesis is that they outperform. Let’s watch GS stock for the next 5 years.

Someone please comment and explain why this is all nonsense conspiracy talk. Please point out what I’m overlooking.

Full disclosure: I own an AIG life insurance policy. Thanks for the bailout.

Update:

Looks like Paulson and Blankfein had a lot to talk about prior to AIG’s rescue. http://www.nytimes.com/2009/08/09/business/09paulson.html

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