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The Goldman Sachs/AIG Saga

Articles & Blogs - US Commentary

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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”.

Regular readers will note a similarity here between this scam, and a much bigger scam, in which most of the banksters participated: interest-rate swaps. In that scam, while loyal Ben Bernanke was still pumping-up U.S. markets with talk of the U.S.'s “Goldilocks economy”, behind the scenes, the banksters were duping towns, states, and institutions all over the world into believing that U.S. interest rates would have to go much higher to “cool off” the U.S.'s “economic juggernaut”.

In reality, of course, the banksters' multi-trillion mortgage scam was just about to implode, resulting in trillions in losses and obviously necessitating that interest rates plummet toward zero. Having fooled all the chumps into taking the wrong side of that interest-rate bet, the banksters are now attempting to collect on their trillion-dollar scam (see “WHO were the WINNERS in Interest Rate Swaps?”). However, with some of those “chumps” beginning to realize how they were “played”, the law-suits have now begun, and in the case of China, it is simply tearing up some of those contracts and flushing them to where they belong.

Lest any argue that AIG was much too “sophisticated” to play the role of gullible stooge for Goldman Sachs, I need only remind people that Harvard University was fleeced for about $1 billion in losses – in financing only $2 billion of debt, using interest-rate swaps. And that fleecing took place when Harvard University was being run by “banking genius” and Obama “economic policy advisor” Larry Summers. If the man who is telling the U.S. how it should run its economy could get fleeced in that manner by JP Morgan, then it is no great leap to believe the insurance salesmen of AIG could be Goldman's patsy.

Thus, Goldman Sachs went from (passively) using AIG as its insurance-toilet, to pushing AIG to insure the same “assets” which Goldman Sachs was aggressively shorting. Then, once all the “bait” had been taken, Goldman began relentlessly writing down those assets at a time when all the other banksters were still maintaining their “mark to model” (fantasy) valuations.

Goldman was selling these “toxic” financial products to investors as “long” investments, while behind their backs it was not only shorting the same “assets”, but it was also writing down those assets – in order to trigger the massive pay-outs on the CDS contracts it had conned AIG into underwriting. In other words, apart from the “market forces” which were shredding the valuations of these “assets” quite nicely, Goldman was “greasing the skids” on these products (and the entire sector) by marking-down their valuations far lower than any other financial institution – in order to collect on its scams.

In short, apparently alone in the financial community, Goldman Sachs was openly and intentionally misrepresenting the values and risk-levels of various assets – while attacking those assets through its own shorting and CDS-scam. With unequaled access to the White House and Treasury Department, and with advance notice of policy decisions, which is not available to even most of the other banksters, Goldman Sachs had the best and clearest view of where the U.S. economy was headed – making their subsequent double-dealing completely unequivocal with respect to Goldman's malevolent intent.

I see no sign of any specific intent to “take down” AIG, but rather this former insurance Goliath was simply another “mark” to be played by Goldman Sachs' con-men. While the other banksters only lined-up one “parachute” to help them bail-out of their massive Ponzi-scheme (interest-rate swaps), Goldman Sachs had prepared two for itself – interest-rate swaps and AIG.

As a final note, the latter write-up on this episode (which I cited earlier) made one other extremely interesting observation: many of these contracts which were written up at AIG's expense were done while good old, Hank “Bazooka” Paulson was CEO of Goldman Sachs. Then, as Treasury Secretary, “Bazooka” Paulson ordered AIG to pay 100 cents on the dollar to Goldman on every one of those same contracts (with taxpayer money).

In the country where the concept of “conflict of interest” simply does not exist, neither Paulson nor the Bush regime saw anything wrong with Paulson handing billions of taxpayer dollars to his former employer – as payment for contracts which (at the least) have a heavy stench of fraud. This also sheds additional light on why Paulson attempted to have himself personally exempted from any and all liability for his handling of the TARP money (a waiver so broad, it would have made him immune to even blatant acts of fraud or misappropriation).

In any other country, a scandal of this magnitude would be enough to bring down an entire government. In the United States, however, it is merely “business as usual”.

Comments (2)Add Comment
Jeff Nielson
written by Jeff Nielson, February 09, 2010
Yes, THIS TIME they got away with it - in terms of "getting away with it" up to this point.

BUT, they have begun to rouse the sheeple. I can tell just from my own interactions with people that awareness is starting to increase AND along with it, the desire to actively LEARN about what's going on (instead of being spoon-fed by the propaganda-machine).

Since the only way their paper-empire can be propped up is through more scamming and stealing, you're right: at some point there is either a full-fledged "revolution" - or at least a REAL purging of those at the top.

In other words, as long as the majority of Americans continue to play the Tweedle-Dee/Tweedle-Dumb election game of thinking that things can magically get fixed by either of those two political despots, you are doomed. However, history tells us that the ruling elite always pushes too far - and then the whole cycle starts all over again, with new "players".
written by JsJ, February 09, 2010
They think they got away with it, and they have so far. I know Americans, however, and we are a bloodthirsty lot when it comes down to it. The day will come when either the government or lynch mobs will see a harsh justice done. I hope for the bankers' sakes it is the government.

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