A.I.G. failure would have cost Goldman, docs show

Since the United States government stepped in to rescue the American International Group in the fall of 2008, Goldman Sachs has maintained that it would have faced few if any losses had the insurer failed. Though it was the insurer’s biggest trading partner, Goldman contended that it had bought credit insurance from financial institutions that would have protected it, but it declined to identify the institutions.




A Congressional document released late Friday lists those institutions and shows that Goldman was exposed to losses in an A.I.G. default because some of the investment bank’s trading partners, such as Citibank and Lehman Brothers, were financially unstable and might have been unable to make good on large claims from Goldman.

The document details every institution that had sold credit insurance on A.I.G. to Goldman as of Sept. 15, 2008, the day before the New York Fed arranged the insurer’s rescue with an $85 billion backstop. The document, supplied by Goldman Sachs, was released by Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee.

Goldman had purchased credit protection on A.I.G. worth $402 million from Citigroup and $175 million from Lehman Brothers, the document shows. As of the date of the document, Lehman had already filed for bankruptcy protection.

“This illustrates that the Goldman version of reality is not entirely accurate,” said Christopher Whalen, managing director at Institutional Risk Analytics. “They did have exposure to A.I.G., and that is what drove their behavior in the bailout.”

Read on.

Here is the nugget found in the Senate Finance Committee website:

Questions for Elizabeth Warren, Congressional Oversight Panel

Several times in your Panel’s June report on the AIG bailout, you indicated that Goldman Sachs failed to provide information requested by the Panel. In particular, you indicated that Goldman did not provide information sufficient to identify entities you called the “indirect beneficiaries” of the AIG bailout — financial institutions with whom Goldman had hedged the risk of its exposure to an AIG default. You said, “And we want to know the identity of those parties partly just to know where American taxpayer dollars went, but partly to assess Goldman’s claim … that they had nothing at stake one way or the other in the AIG bailout.”

Following my suggestion to the Chairman that the Committee issue as subpoena if necessary, after the hearing, Goldman Sachs provided the Committee with the following spreadsheets and a briefing (see Attachments 1 and 2). My understanding is that Attachment 1 lists companies that wrote credit default swap protection on AIG for Goldman, meaning that in the event of an AIG default in September 2008, these entities would have been responsible for paying Goldman the amount in the “Net” column. Thus, these entities avoided losses in the amounts listed on Attachment 1 as a direct result of the taxpayers’ bailout of AIG in September 2008.