As more analysis of the details of the Fed's bailout of AIG come to light, tonight we learn that it was the Wall Street banks--led by Goldman Sachs much moreso than they've acknowledged to date--that were actually closely involved in the very underwriting of the mortgages they were bundling, selling, and then buying credit default swaps from AIG to cover the losses on their paper, with Goldman's collateralized debt obligations (CDO's) being
the most toxic of all. (SEE: "
Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs.") In fact, in some instances, Goldman's CDO's had depreciated in value by more than 75% by the time the Fed was secretly engaged in paying them off on their AIG credit default swaps with taxpayer funds at 100% of their original value.
So, the takeaways here are:
1.) The banks (i.e.: Wall Street firms such as Goldman) bundling these CDO's virtually, from the get-go, had to know their value was FAR less than they claimed, because they were connected to most of the underwriting of these mortgages, as well.
2.) Goldman underwrote $17.2 billion worth of the $62.1 billion in collateralized debt obligations that AIG insured (with credit default swaps); Goldman's claims, at the time (in mid-September 2008, when AIG was bailed out by the government), that they were not exposed to significant losses, were even more disingenuous than any outsider realized; as a result of that, they held more counterparty credit default swaps that ended up being purchased by Maiden Lane III, the government entity created to buy (payoff on) these swaps.
3.) It would have been next to impossible, given the facts above, for these banks not to have known that they were engaged in a scam--essentially buying life insurance on a patient that they knew was going to die from a terminal illness soon thereafter--leaving AIG holding the proverbial bag, all due to the fact that these very firms had firsthand knowledge that there was no way in hell that the CDOs' valuations (on which they were buying insurance--i.e.: credit default swaps) were worth anything even close to their stated value.
Very simply, the banks' had to be intimately aware (moreso than any other party could possibly have understood up until now) of the crap that they had bundled into collateralized debt obligations; therefore, they needed a willing chump (i.e.: AIG) to insure that paper just to enable Wall Street to complete the scam. And, an AIG in bankruptcy simply would not have enabled Wall Street to pull it all off. Only a government bailout/takeover of the insurance giant would (or could) guarantee a 100% return on Wall Street's "list price"...all with Goldman Sachs having the most to gain--by far--in the navigated outcome of the deal.
While I've posted recent pieces by HuffPo diarist David Fiderer which also support these realities, stated above, tonight's Bloomberg revelations represent the first time (to the best of my knowledge) where a significant MSM/business media outlet has actually come out and said, point-blank: "Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs."
In it, while we learn that the focus of the investigative commission on the AIG bailout has been on people such as current Treasury Secretary Tim Geithner (at the time of the bailout he was the head of the NY Federal Reserve branch), the actual smoking gun is found in the detail contained within the inventory list of securities (i.e.: the "secret document," referenced below) purchased by our government (a/k/a "Schedule A").
Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs
By Richard Teitelbaum
Feb. 23 (Bloomberg) --
The document...cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.
Link to a graphic from HuffPo's David Fiderer: GRAPHIC: MOODY'S RATINGS DOWNGRADES ON SELECTED AIG CDO'S.
Back to this morning's Bloomberg story...
The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.
--SNIP--
The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured -- more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.
These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: "They may have been trying to shield Goldman -- for Goldman's sake or out of macro concerns that another investment bank would be at risk."
# # #
From David Fiderer, on HuffPo: 'Suspicious' AIG Debt Ratings Changes Enabled Goldman (updated) (2/13/10)
More from Fiderer: The Times Story On Goldman's Role in AIG's Downfall Is More Damning When Placed In Context (2/8/10)
From Gretchen Morgenson at the NYT: Testy Conflict With Goldman Helped Push A.I.G. to Edge (2/7/10)
David Fiderer's best: How Paulson's People Colluded with Goldman to Destroy AIG... (1/28/10)
Fed-AIG Scandal For Dummies: Corporate Kleptocracy Edition (1/27/10)
Is Geithner Toast? Barofsky Announces 2 New Fed-AIG Probes (1/26/10)
Reuters: SEC Considered AIG Bailout National Security Matter (1/25/10)
Naked Capitalism: Naked Capitalism Guest Post: AIG Bailout Secrets Exposed! (1/23/10)
Breaking (Update): Fed Denies House Subpoena For AIG Docs (1/12/10)