1. There was a scandal during the economic meltdown (You have got to be kidding!)
2. Goldman Sachs was in the middle of it lining their own pockets with our tax dollars to the tune of billions of dollars.(Shocking!)
3. The government (Geithner) and Goldman made secret deals we are just now finding out about.
4. Goldman managed to come out of the biggest economic meltdown in 80 years with 100 cents on every dollar … a fact that in and of itself is scandalous because it was all done in secret and because it was done at all.
5. Evidence released this week in the FCIC report tells us the scandal is worse than we think ….and not only was Goldman Sachs paid 100 cents on the dollar by way of the taxpayer bailout of AIG … there is really no chance that they didn’t do considerably better than 100%….You are no doubt saying “But Cameron …are you saying that they bilked us for more than 100 cents on the dollar ….how is that possible?”
I will tell you exactly how it’s not only possible, it’s an absolute certainty!
Here are some quick background facts to refresh your memories… For starters, take it on faith that there is, and has been, an incestuous relationship between Goldman Sachs and the Obama administration since its inception. Not just your garden variety incestuous relationship either ….but one that goes so far as to make the players involved, all almost interchangeable … Recall that former Secretary of the Treasury Paulson came from — Goldman Sachs where he was its chief. Recently in the New York Post, Michelle Malkin wrote a good article called “All the President’s Goldman Men” listing the usual suspects like Larry Summers, Timothy Geithner, Rahm Emanuel, Gary Gensler and Mark Patterson etc. etc. the list extends all the way to the Supreme Court …yup Fred Flintstone herself has Goldman fingerprints all over her.
Here is the part that most people don’t understand: back before the proverbial poop was hitting the fan, Goldman let it be known that they were on with AIG for approximately 20 billion in trades where they’d bought themselves ‘insurance’ on some icky, yucky, smelly mortgage products they were currently holding. Goldman went on to say they assumed the total amount of risk this position represented was somewhere around .50 on the dollar… or about 10 billion. With me so far?
Of that 10 billion, 7.5 billion was fully collateralized by assets of AIG held by Goldman leaving only 2.5 billion of that assumed risk …naked (so to speak). Goldman, being Goldman, protected this last amount by buying CDS’s (Credit Default Swaps) on AIG, but they made a special point of buying these CDS’s from various other highly rated banks. Pay close attention because this was a very slick play … By doing it this way (buying the CDS’s from major banks) any default by AIG would be a serious problem for those banks and not Goldman …say that again…. therefore not only were they able to truthfully say things that really weren’t… if AIG did default, they (Goldman) would not be at risk…which created a set of circumstances and counterparties ensuring that an AIG default would set in motion repurcussions that were a threat to the entire system. Goldman would squeeze the banks they bought their insurance from and those banks in turn would make demands of AIG. By adding these extra layers of people and involvement into the equation, the impact would be far reaching and systemic … does that make sense? Due to the strategy they chose to utilize in hedging their positions Goldman was both fully protected and also “1 off” the position of the bad guy should everything come tumbling down. Sort of like when you were a child and you knew you were in big trouble as soon as you got home so in hopes of deflecting and diffusing some of the punishment that was headed your way you would try to enlist as many of your friends to go to your house with you to soften tha initial blow. A good analogy would be that they weren’t on the front lines of the people who would have their hands out in the event of a default … instead they lurked with their hands working the strings controlling the banks they used as puppets, proxies, and shields.
They didn’t have to be able to squeeze AIG directly when all they had to do was squeeze the banks they bought the CDS’s from who in turn would be the one’s squeezing the life out of AIG. They had all of the power and none of the exposure (or bad press …at least not then) but most of all by infecting as many others by involving them in their hedge strategies and the potential systemic failure those numbers represented they were able to demand from their old colleague Tim Geithner 100% on the dollar with the alternative, should anyone try to offer them less ….the ability to start the dominoes falling that would end up with the end of AIG. So when we bailed out AIG’s bad business practices to the tune of 180 billion dollars (80 billion of which was the total of AIG;s CDO’s exposure of which 33 billion had been brought into existence by Goldman) first in line with their hands out were the banks who were the counterparts to Goldman’s CDS’s. Follow? Good, because these facts are pretty much admitted by everyone AND because we are getting to the good part.
What I was harping about in my earlier rants on this topic was this:
AIG didn’t default….because we stepped up and infused the 180 billion (total) to cover their markers
What was remarkable at this point was Goldmans statements …under oath …that it didn’t personally profit from any government bailout money …which was remarkable because it was also not truthful. Soooo, If there was no default then those CDS’(totaling 2.5 billion of insurance remember?) were still tradable and valuable securities … so what Goldman had post bailout was all of their money back PLUS they retained ownership of 2.5 billion dollars of “protection” against an AIG default … now ask yourself this …after the world almost came to an end causing us to be required to step up and fork out 180 billion dollars of additional vig to AIG , would you guess that those CDS’s (representing 2.5 billion of get out of bad decisions free cards) went up in value or down in value? … If you guessed up …and sharply up ….up so significantly that you may even say they rocketed up … Then you would be 100% correct… How far up did they rocket ? …over 50% (is all)! i.e. 2.5 billion would have then become an additional 1.25 billion in the money!
So what did Goldman do? …
Before we get to that let’s recall the incestuous relationship they shared with the fed and the Treasury etc. of the Obama administration. When all of this was going down Goldman was actively involved in all of those high level discussions over what to do with AIG etc. They new how the game was going to end before it was played which is fine right up until they used that information (inside information) to impact their trading decisions INCLUDING whether or not they should sell those CDS’s at a huge profit or keep them just to make sure.
Now back to the question of what did they do? …
They took profits of course…
and in doing so they broke the law 100 ways from Sunday. And by taking those additional billions in profits they were legally not allowed to take ….they not only were covered 100% on their trading position …(and many others weren’t…to say the least) they also made a huge profit from the economic meltdown they had helped bring about. And those profits all came from one place …Our Taxes!
If you aren’t really angry right now then you still don’t get it and you need to go back and read through this again or take my word for it and just get mad anyway!
Intermixed with all of this are the gratuitous lies and subterfuge that we get to wade through right now with the release of the FCIC report including this little revelation: Before last week Goldman had stoically and adamantly maintained that they had not profited themselves but it was their customers who had banked the full payoff from Uncle Sam…the FCIC report contradicts those claims because billions of dollars in profits were Abacus trades …a.k.a. trades Goldman insured with AIG which were principal positions and not for their client accounts…. DOH!