Goldman Primed to Benefit from AIG's Woes -- Again,

Yahoo ^ | 7/2/09

[FromLori]

When Wall Street imploded last year, the Fed and Treasury took "some of the right moves" in order to revive the financial system, says William Cohan, author of House of Cards. But the government blew at least one crucial act of the saga, Cohan says: The backdoor bailout of AIG’s counterparties, notably Goldman Sachs, which received $13 billion of TARP funds via the AIG conduit last fall.

Adding insult to taxpayer injury, Goldman Sachs is primed to benefit should AIG ultimately file for bankruptcy and default on its debt, Cohan reports, having invested about $200 million in related credit default swaps.

Goldman spokesman Michael DuVally confirms the firm spent “over $100 million” on credit default swaps to hedge a $2.5 billion difference between the amount of collateral AIG had posted on certain trades and the amount Goldman thought it was due.

But DuVally says the trades were “wound down because we received the collateral owed,” a reference to the $13 billion the firm received via the AIG conduit last fall.

“They’re gone,” he says. “There will not be a credit event because the government decided to bail AIG out.”To be sure, there's no evidence an AIG default is imminent - or even likely given the government's seemingly endless support.

Still, Cohan disputes DuVally's characterization and AIG's 1-for-20 reverse stock split Wednesday did little to instill confidence in the firm.

Goldman “paid for credit default swaps from third parties to ensure them against a default in AIG debt,” he says in a phone conversation subsequent to the accompanying video. “ If AIG debt does [go into] default they get paid off.”

Furthermore, “it makes no sense to unwind” the trade, Cohan says, comparing it to a homeowner who pays for flood insurance and then says “I paid the premium but

[cranked]

Further proof that the Americna people once again got screwed over.

[La Lydia]

Bear-Stearns: “We Wuz Robbed!”

[ding_dong_daddy_from_dumas]

I used to think that bankruptcy courts would act fairly, would not throw out 150 yesr s of contract law precedents to please Obama. Now I believe that the whole casino is rigged, in that there are players like GS who are “supposed to win” no matter what. Even in the unlikely event the bankruptcy court taking the AIG case did not restore 100% of AIG’s liabilities to GS, the FED and congress would find a way to make GS happy.

[Toddsterpatriot]

Furthermore, “it makes no sense to unwind” the trade, Cohan says, comparing it to a homeowner who pays for flood insurance and then says “I paid the premium but don’t want the insurance.”

Unwinding the trade gets part or all of the premium back. Why doesn't that make sense?

I wonder if Cohan's entire book shows as little knowledge about the markets?