Wall Street pushing back at Geithner – you don’t want to pick fights with the US Treasury head if you’re in the financial business, but at some point you realize you have nothing left to lose. The Wall Street media are finally beginning to explain to the public what we knew 9 months ago…. the “AIG bailout” was all about saving Goldman Sachs, not AIG. The Federal Government plays no role in the insurance business – states regulate that, and had no legal responsibility to “save” AIG.
While Goldman was loading up on worthless Freddie Mac and Fannie Mae loans, they were buying a form of insurance from AIG (Credit Default Swaps) which would pay Goldman when/if the mortgages fell apart (which Goldman had to know would happen – they aren’t stupid).
Had AIG gone into bankruptcy, Goldman would have had to negotiate with the bankrupcty court to be paid off for the CDS contracts. In similar situations, the buyer of the CDS ends up settling for $.50 to $.70 on the dollar. Goldman was holding $80 billion in CDS ontracts with AIG.
Geithner inisisted that failed AIG pay off Goldman 100 cents on the dollar, which meant a $13 bnillion windfall to his (and Hank Paulson’s) former ermployer – Goldman Sachs. The left and the right are beginning to align on who the villian in this story is.
