While Insider Trading Arrests Entertain the Masses, Goldman Continues to Skate

Matt Taibbi has a solid piece on Goldman below and, on another note, I hear DOJ is snooping around Taibbi's not so solid naked short selling story which Penson claims icontains a bogus video.

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs , whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

In his resignation letter, Friedman said his continued role as chairman had been mischaracterized as improper. Goldman Sachs spokesman Michael DuVally declined to comment.

AIG paid Societe General $16.5 billion, Deutsche Bank $8.5 billion and Merrill Lynch $6.2 billion.

~ via New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers – Bloomberg.com

It’s kind of amazing that with all the uproar over the Galleon business, nobody is making much hay over the recent revelations about the AIG bailouts, which make former Goldman chief and former New York Fed chairman Stephen Friedman look every bit as guilty of insider machinations as Raj Rajaratnam of the Galleon fund.


It’s impossible to grasp the totality of Friedman/Goldman’s grossness with regard to the AIG story without a little context. Remember the basic timeline. In the middle of the mortgage bubble, Goldman Sachs found a patsy-buffoon named Joe Cassano at a little corner of AIG called AIG Financial Products, or AIGFP. Cassano was recklessly writing hundreds of billions of dollars worth of credit default swaps for banks like Goldman and Deutsche, essentially insuring certain investments for these banks, including extremely risky mortgage-backed deals.


Goldman took out billions of these CDS positions with Cassano, who had written upwards of $440 billion of these CDS without having even a fraction of the money he would have needed to cover that bet in the event of a disaster of the type that actually ended up taking place, specifically a downgrade of AIG’s credit rating that forced Cassano to pony up wads of cash to cover those positions.

The important thing to remember about all of this is that just because Goldman was buying “insurance” from Cassano, that doesn’t mean they were being responsible. On the contrary: Goldman was creating well over ten billion dollars worth of exposure to a guy that they must have known was an absolute idiot. Now, in a world where actual capitalism existed, Goldman should then have been highly invested in making sure that AIG did not go under. A dead and bankrupt AIG should not have been good news to a company like Goldman Sachs , which had billions of dollars riding on AIG’s financial health.

Read the entire article here.