POWIP Piece of Work In Progress

Goldman and AIG

More revelations from the NYT:

Still, documents show there were unusual aspects to the deals with Goldman. The bank resisted, for example, letting third parties value the securities as its contracts with A.I.G. required. And Goldman based some payment demands on lower-rated bonds that A.I.G.’s insurance did not even cover.

A November 2008 analysis by BlackRock, a leading asset management firm, noted that Goldman’s valuations of the securities that A.I.G. insured were “consistently lower than third-party prices.”

To be sure, many now agree that A.I.G. was reckless during the mortgage mania. The firm, once the world’s largest insurer, had written far more insurance than it could have possibly paid if a national mortgage debacle occurred — as, in fact, it did.

Perhaps the most intriguing aspect of the relationship between Goldman and A.I.G. was that without the insurer to provide credit insurance, the investment bank could not have generated some of its enormous profits betting against the mortgage market. And when that market went south, A.I.G. became its biggest casualty — and Goldman became one of the biggest beneficiaries.

*******

By the spring of 2008, A.I.G.’s dispute with Goldman was just one of its many woes. Mr. Cassano was pushed out in March and the company’s defenses against the growing demand for payments faltered. By the end of August 2008, A.I.G. had posted $19.7 billion in cash to its trading partners, including Goldman, according to financial filings.

Over that summer, A.I.G. had tried, unsuccessfully, to cancel its insurance contracts with the trading partners. But Goldman, according to interviews with former A.I.G. executives, would allow that only if it also got to keep the $7 billion it had already received from A.I.G. Goldman wanted to keep the initial insurance payouts and the securities in order to profit from any future rebound.

In addition to offering to cancel its own contracts, Goldman offered to buy all of the insurance A.I.G. had written for several other banks at severely distressed prices, according to three people briefed on the discussions.

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The government would soon settle the yearlong dispute between Goldman and A.I.G., with Goldman receiving full value for its bets. The federal bailout locked in the paper losses of those deals for A.I.G. The prices on many of those securities have since rebounded.

UPDATE: Jeff's got up an excellent post on Mario Cuomo's attempt to remake himself by going after Bank of America. I'd earlier mentioned this with respect to SEIU.

Dan Collins

Dan Collins is a dude who blogs. He used to blog elsewhere. Now he blogs here.

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