Tavakoli: Goldman's CFO Lied to the Public

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors, among those who have sought her opinion on derivatives, Warren Buffett.

In an email to me, Janet writes:

It is a strong statement to say that a CFO lied to the public, and in my opinion, David Viniar, Goldman Sachs CFO, lied about Goldman’s exposure to AIG while the AIG bailout was in progress in September 2008. Viniar spoke about risk management, but that is a separate issue from whether or not Goldman Sachs would have money at risk due to its direct business with AIG. Goldman Sachs would have been out billions of dollars in collateral had a bankruptcy-like settlement been negotiated with AIG, and that is material.

This is what David Viniar said during his Sept 16, 2008 investor conference call:

David Viniar - The Goldman Sachs Group, Inc. - EVP, CFO Sure. Without giving exact numbers, let me just tell you how we think about this. AIG and Lehman, big important financial institution counterparties to Goldman Sachs. We did and we do a lot of business with both of them, as we do with all other major financial institutions. The way we do business with financial institutions is by having appropriate daily margin terms. That is how we are able to do the volume of business with each other that we do. And that goes for AIG, Lehman, and also Morgan Stanley, and JPMorgan, and Citi, and UBS, and Credit Suisse. That is how we manage our risk. In addition to the margin terms, we augment our risk management with appropriate hedging strategies. You heard at the beginning of my remarks that we believe one of the biggest challenges we have is to avoid large concentrated exposures; and we took that very much into account in managing our credit exposures to Lehman and to AIG, as well as we do with any other financial institution. Given that, what I would tell you is given the outcome at Lehman and whatever the outcome at AIG, I would expect the direct impact of our credit exposure to both of them to be immaterial to our results.

Which brings the following questions to the forefront: Why was former Goldman CEO Hank Paulson leading, or even involved in, the negotiations on the AIG bailout? Shouldn't he have recused himself? To make the outcome appear even more questionable, why was Lloyd Blanlfein, Goldman's chairman, at a key AIG government bailout meeting, when no other banking executives were atthe meeting? And, finally, why was Goldman paid in full on its derivatives exposure to AIG?

UPDATE: Janet also notes that Stephen Friedman (board member of Goldman and former CEO), while Chairman of the Board of the NY Fed, purchased Goldman stock after the bailout was decided and before it was publicly announced