Sunday, February 7, 2010

News of the vampire squid

The little gremlins of history have been blindly tap tapping their way down the newspaper tunnel, unrolling bits and pieces of our secret history – a history crowning the decade of peak imbecility, the 00s. In November last year, Bloomberg ran a big story about the negotiations between the U.S. and AIG’s counterparties in December, 2008, which it was revealed that team U.S., headed by Geithner, blithely ignored all advice and forked over 100 percent of AIG’s alleged obligation to, among others, Goldman Sachs. It so happened that the ex GS CEO, Hank Paulson, was the Secretary of Treasury, and it so happened that in September, 2008, when the Treasury and the New York Fed confabbed to try to figure out how to decently socialize AIG’s trillion dollar bets and pretend it was still capitalism, the one bank that was invited to attend the meeting was… Goldman Sachs.

Now, we have known about the 12.9 billion for some time. The story Goldman Sachs crafted in response is a masterpiece of doubletalk, around what seems to be an outright lie.

“Goldman, for its part, has insisted it did not need the bailout money because it was "always fully collateralized and hedged."

Long Wall Street's largest investment bank before it recently became a bank holding company, Goldman answered a series of questions from Reuters about the bailout funds.
"We can say that our notional exposure to AIG is a fraction of what it was at the time of the September bailout," Goldman spokesman Michael DuVally said.
Asked why Goldman Sachs took $12.9 billion of taxpayer money if it was collateralized and hedged on its AIG positions, DuVally said it was because AIG was not allowed to fail, so Goldman did not get money from hedges that would have paid out if the insurer had collapsed. And, he said, under the terms of its contracts with AIG, Goldman was entitled to collateral.
DuVally also said the bank does extensive due diligence on all its counterparties.”

Well, it does take balls – balls made of soap bubble, blood, old bacon grease and curdled milk – to proclaim, with a straight face, that Goldman Sachs does “extensive due diligence’ on all counterparties when answering a question about a counterparty, AIG, whose operations cost the government 180 billion dollars to bail out, just going in. It is like proclaiming that you do extensive due diligence on your friendship while explaining all the pictures of you partying with Jeffrey Dahmer.

Now, however, we know what happened – to a certain extent – between Goldman Sachs and AIG – we know that Goldman Sachs was behind the final tipping over of AIG; the mystery of why Societe General was paid out so much in the AIG bailout is explained; and the GS lie – that it was “fully collateralized”, which has never made any sense, given the nature of the international financial environment in December, 2008 – is exposed for the lie it is just a little bit more:

In just the year before the A.I.G. bailout, Goldman collected more than $7 billion from A.I.G. And Goldman received billions more after the rescue. Though other banks also benefited, Goldman received more taxpayer money, $12.9 billion, than any other firm.
In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
Goldman stood to gain from the housing market’s implosion because in late 2006, the firm had begun to make huge trades that would pay off if the mortgage market soured. The further mortgage securities’ prices fell, the greater were Goldman’s profits.
In its dispute with A.I.G., Goldman invariably argued that the securities in dispute were worth less than A.I.G. estimated — and in many cases, less than the prices at which other dealers valued the securities.
The pricing dispute, and Goldman’s bets that the housing market would decline, has left some questioning whether Goldman had other reasons for lowballing the value of the securities that A.I.G. had insured, said Bill Brown, a law professor at Duke University who is a former employee of both Goldman and A.I.G.
The dispute between the two companies, he said, “was the tip of the iceberg of this whole crisis.”

To sum up – amazingly, the Treasury invited Goldman Sachs to its preliminary meetings with A.I.G. in September, and Goldman Sachs used its privileged knowledge to pump even more money out of A.I.G., which then has to be propped up for the not insiginificant sum of 180 billion in December, of which some large part goes directly to Goldman Sachs, and some part goes to Goldman circuitously, through Societe Generale.

We know the Bush/Obama people who did this. And these are the people who have designed our entire response to the depression.

They are backed up, of course, by the collective intellectual firepower of those people who designed the occupation of Iraq, who populate the Pentagon. It is no longer a question of whether the elite is stupid, mad, vicious, corrupt, and gorged with the theft of natural resources that are even now being taken out of the mouths of infants worldwide and stuffed up the asshole of GS shareholder – it is a question of the disconnect, the democratic shortfall, that allows this clique to operate with impunity.
Another zona story.

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