The clearer picture is the result of Janet Tavakoli's provocative article, Goldman’s Lies of Omission. In the article, she claims that GS CFO David Viniar lied when he said GS's exposure to AIG would be insignificant.
A anonymous Goldman apologist who writes at Economics of Contempt responded to Tavakoli's article, calling the article part of a, "ridiculous conspiracy about Goldman and AIG [that] just won't die."
As you will see by the end of this post, the GS apologist does not only not prove his point, but he sets up the opportunity for an observer to point out that the conspiracy was much grander. The commenter points out that not only was GS bailed out, but so was GS's international bank client list.
The GS apologist essentially says that GS had insurance with AIG that cost $10 billion, but that GS had collateral against that cost of $7.5 billion (and it hedged away the other $2.5 billion in risk by buying CDS insurance against an AIG failure). Thus, the GS apologist says they would have gotten their $10 billion back to buy insurance somewhere else. Of course, at such time the markets would have been in a panic and there is no way GS would have been able to get the same insurance for $10 billion, if at all. As a number of commenters to the post point out, it would be like trying to buy fire insurance for your house while the house is on fire. So this pretty much blows the "Goldman is a saint" anonymous blogger out of the water.
But there is a comment at the Economics of Contempt post that I find fascinating:
GS sold a product to the European commercial banks, that enabled them to meet BASELII reserve requirements. It was, is essence, a piece of US mortgage paper, supported by an AIG insurance policy wrapped with a AAA-rating. At AIG's failure, French banks would have become severely capital constrained. Christine Legarde personally called Paulson to ask that AIG be saved. The reputational risk to GS of near-bankrupting all of Europe's major banks would have been devastating. Read the list of banks who received $ 10s of billions from the FED. Its the GS client list.I'm not sure that anyone else has put this piece of the puzzle together in such a clear fashion:
European banks would have been destroyed by an AIG bankruptcy because of a product sold by Goldman Sachs. The Fed money that went to European banks, through the AIG bailout, was Goldman's international banker client list!
In other words, the AIG bailout that benefited Goldman was much greater than the billions that went directly to Goldman. A large chunk of the rest of the tens of billions went to Goldman's international bank clients. Here's WSJ initial report on who received government AIG bailout money, indeed a huge chunk went to European banks:
Royal Bank of Scotland
A quick call to a friend, who is in a position to know such things ,tells me that, off the top of his head, the international banks do all sound like important GS clients.
So here is the new expanded conspiracy theory: Without a bailout of Goldman international bank clients that were sold the drek by Goldman, Goldman would have lost all international credibility and business. The bailout, on the other hand, has strengthened Goldman's hand internationally. International banks dealing with Goldman know that when push comes to shove Goldman can get them all bailed out.
In other words, the Goldman bailout was even of much greater benefit to Goldman than most have already suspected.