Did
AIG Insure Dodgy Mortgage Products for Goldman Sachs?
TSF
- March 25, 2009 (Click above for file as pdf)
by Janet
Tavakoli
In
the video below, Janet Tavakoli, president of
Tavakoli Structured Finance, explains that AIG
had a lot of cliff risk in some of their
credit derivatives linked to mortgage
backed products, and she questioned these trades in August of
2007. Goldman Sachs was a key trading partner. Some of the mortgage
products coming out of Goldman Sachs Alternative Mortgage Products
looked dodgy. AIG seems to have done most of its trades with
Goldman during Hank Paulson's tenure as CEO at Goldman, and tough
questions should be asked about the nature of the risk that AIG
put on with Goldman Sachs
According
to the Wall
Street Journal’s Serena Ng ("Goldman
Confirms $6 Billion AIG Bets"
March 21, 2009) prior to AIG’s September 2008 bailout,
Goldman had insured $20 billion of chiefly mortgage backed
products,
and Goldman had already received $7.5 billion in collateral
that contributed
to AIG's cash problems. From the time of the bailout until the
end of 2008, Goldman received another $8.1 billion in collateral
from AIG for a total of $15.6 billion before the end of 2008
(the remaining exposure was said to be hedged with credit default
swaps among other hedges).
The key
question is whether Goldman asked AIG to insure products that
were as dodgy
as the deal from Goldman Sachs Alternative
Mortgage Products exposed by Fortune’s Allan Sloan
in his October 16, 2007 Loeb Award winning article: “Junk
Mortgages Under the Microscope.”
Was the lack of disclosure at the time of the bailout to save
Goldman from embarrassment or is there a perfectly innocent explanation?
An explanation
is due because one could argue that Hank Paulson as former
Treasury Secretary (prior to that he was Goldman's CEO) was
an interested man. Another interested man, Lloyd Blankfein,
Goldman's current CEO, had
discussions
with
Treasury
Secretary
Geithner,
although it
was denied the discussions were about AIG.
Notice I
said these were interested men, not persons of interest. Yet
a detailed explanation of the underlying
risk that AIG insured for Goldman Sachs--and others--is
in order.
VIDEO:
Early Warning on AIG and Questions on Goldman's Role – Fox
Business – March 18, 2009.
Janet
Tavakoli is the president of Tavakoli Structured Finance,
a Chicago-based firm that provides consulting to financial institutions
and institutional investors. Ms. Tavakoli has more than 20 years
of experience in senior investment banking positions, trading,
structuring and marketing structured financial products. She
is a former adjunct professor of derivatives at the University
of Chicago's Graduate School of Business. She is the author of: Credit
Derivatives & Synthetic Structures (John
Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized Debt Obligations (John
Wiley & Sons, 2008), and
Dear
Mr. Buffett: What An Investor Learns 1,269 Miles
From Wall Street (John
Wiley & Sons
January 2009)
Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis.
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