The Parasitical Relationship of Goldman Sachs and AIG

So the Federal Reserve is having a (delayed) asset sale of the Maiden Lane III Portfolio acquired from AIG.  Goldman Sachs is one of the dealers who has been invited to participate in the auction.

It is passing strange to have Goldman Sachs able (nay, invited) to buy AIG's once toxic assets especially when you consider Goldman's fraught relationship with AIG before the crisis.  Goldman Sachs preyed upon AIG in very specific ways--by pushing AIG "to the brink of bankruptcy." 

". . . Goldman in the two years preceding AIG's bailout, worked to undermine investor confidence in the insurer, then the biggest seller of credit default swap contracts, and drive down the market value of mortgage-backed securities."  (By Barry Grey - WSWS)

Then, Goldman made a huge profit by betting against the mortgage market.  It is an ugly but true fact that Goldman has always profited in its dealings no matter how fraudulent and unethical its behavior both before and after the GFC.  Goldman should not now profit through buying AIG products.  How twisted is injustice!

Goldman Sachs made billions by pushing AIG to bankruptcy
By Barry Grey - World Socialist Web Site

. . . .
 
By means of the unregulated multi-trillion-dollar credit default swap market, banks and corporations purchase insurance against the default of bonds issued by other banks, companies and governments. If a seller of swaps—AIG was by far the biggest—goes bankrupt, its counterparties stand to lose billions.

By the fall of 2008, AIG was vastly over-leveraged and hemorrhaging cash due to demands from its counterparties, including major banks and financial firms in the US and internationally, that it fulfill its guarantee to make good on mortgage-backed CDO losses. Its failure threatened to tip some of the biggest banks, including Goldman and Morgan Stanley in the US, into bankruptcy.

The Times article suggests that Goldman was using its close relationship with AIG to manipulate the housing market and encourage a panic selloff of mortgage-backed assets, in part by pressing the insurer to make billions of dollars in collateral payments based on Goldman’s “low-ball” estimates of the value of mortgage-backed CDOs it had insured with AIG.

The article notes that Elias Habayeb, an AIG accounting executive, testified before Congress in January that Goldman’s payment demands were a major factor in AIG’s downfall.

The implication is that the financial crash was not simply the result of disembodied “market forces.” Highly conscious profit-driven calculations by financial giants such as Goldman played a critical role.

Read the entire article here