November 10, 2009 Updated with additional analysis through 2025
by Janet Tavakoli
Goldman wasn’t the only contributor to the systemic risk that nearly toppled the global financial markets, but it was the key contributor to the systemic risk posed by AIG’s near bankruptcy. When it came to the credit derivatives (insurance-like contracts that pay out when underlying assets fail) American International Group, Inc. (AIG) was required to mark-to-market, Goldman was the 800-pound gorilla. It pushed AIG to the edge of disaster. The entire financial system was imperiled, and Goldman Sachs would have been exposed to billions in devastating losses.
A Goldman spokesman told me its involvement in AIG’s trades was only as an “intermediary,” but that isn’t even close to the full story. Goldman underwrote some of the CDOs comprising the underlying risk of the protection Goldman bought from AIG. Goldman also underwrote many of the (tranches of) CDOs owned by some of AIG’s other trading counterparties.
By September 2008, Goldman had approximately $20 billion in transactions with AIG, down from $23 billion in November 2007. Goldman was AIG’s largest counterparty, and its trades made up one-third of AIG’s approximately $60 billion in transactions requiring market prices. AIG was required to price these credit derivatives using market prices, and after the downgrade, AIG owed collateral for the full mark-to-market value to several counterparties. Société Générale (SocGen) was AIG’s next largest counterparty with $18.7 billion (as of November 2007). AIG’s other major trading partners for the credit default swaps requiring mark-to-market prices included French banks SocGen and Calyon, Bank of Montreal, Wachovia, Merrill Lynch, UBS, Royal Bank of Scotland, and Deutsche Bank. Moreover, SocGen, Calyon, Bank of Montreal, and Wachovia bought several tranches of Goldman’s CDOs and hedged them with AIG.
On November 27, 2007, Joe Cassano, the former head of AIG’s Financial Products unit, wrote a memo about the collateral AIG owed to its counterparties. Goldman, Soc Gen, Calyon and others required more than $4 billion. Goldman asked AIG for $3 billion of the $4 billion required in collateral calls. By September 2008, Goldman had called $7.5 billion in collateral from AIG.
AIG listed these transactions as negative basis trades, indicating Goldman earned net profits by purchasing—or holding—CDO tranches while simultaneously hedging them with AIG through credit default swaps. Whether Goldman acted as an intermediary or booked the trades directly, Goldman had to manage its risk in the event AIG collapsed, profiting regardless of the CDOs’ performance. Goldman held this risk in the form of credit default swaps or credit derivatives, for which it was a protection seller, and Goldman hedged its CDO risk with AIG. As of November 2007, Goldman marked down these originally “AAA-rated” tranches to 67.5%, down by almost one-third.
SocGen’s negative basis trades totaled $18.6 billion. SocGen’s list includes deals underwritten by Goldman: Altius I, Davis Square II, Davis Square IV, Davis Square VI, Putnam 2002-1, Sierra Madre, and possibly more. SocGen hedged this risk by purchasing protection (in the form of credit default swaps) from AIG.
Calyon had $4.5 billion of negative basis trades with AIG. Calyon and Goldman were co-lead on at least two deals: Davis Square II and Davis Square V. According to AIG’s memo, Calyon got its prices for these deals from Goldman.
Goldman questioned PriceWaterhouse, Goldman’s and AIG’s common auditor, about prices. Goldman wanted lower prices, which meant that AIG would have to produce more collateral for all its counterparties. AIG’s September 2008 credit rating downgrade triggered counterparties to demand an additional $14.5 billion in collateral from AIG to equal the full difference between original prices and market prices of the reference CDO tranches. “Market prices” in this illiquid market were influenced by Goldman Sachs, an originator or counterparty of one-third of the deals in question.
My analysis of January 2008 provides a snapshot of Goldman’s value-destroying securitizations that were protected by AIG. For example, the data reveals:
Abacus 2005-2: Goldman originated and bought protection on these mortgage assets. Multiple tranches showed severe deterioration.
Inside Goldman’s mortgage assets were value-destroying assets created by other Wall Street firms. Everyone bought each other’s junk so prices stayed artificially high, and the risk could be dumped on someone else. Among the many shards of glass masquerading as gems, you will find Tourmaline CDO 2005-1. It was managed by Blackrock, and later it would become the manager of the AIG assets that the Fed purchased with public money. The Fed awarded Blackrock a no-bid contract.
In my opinion, David Viniar’s (CFO of Goldman Sachs) comments in the fall of 2008 were a lie, and for that matter, Lloyd Blankfein’s (CEO of Goldman Sachs) later comments to the Wall Street Journal were disingenuous.
During Goldman’s September 16, 2008 third-quarter earnings call, as AIG’s bailout was being negotiated, David Viniar stated:
“Given the outcome at Lehman and whatever the outcome at AIG, I would expect the direct impact of our credit exposure to both of them to be immaterial to our results.”
Goldman should have plainly stated that it was owed billions in additional collateral from AIG—after already having collected billions—due to credit default swap contracts and other trading positions. Whether or not Goldman thought its credit risk was totally hedged is a separate, albeit important issue.
Among the proximate causes of AIG’s failure were previous calls for collateral made by its credit default swap trading counterparties, including Goldman Sachs. Goldman was entitled to pressure AIG on its prices and demand more collateral, but their actions gave a major push to AIG’s subsequent credit downgrade.
Goldman’s spokesman called me directly and mentioned Goldman’s lawyers at the start of our conversation. This represented an implied threat of legal action to silence critics. The fact that Goldman Sachs tracked my analysis closely enough to place a direct call shows how concerned they were about public exposure of their role in AIG’s crisis.
Goldman’s spokesman said that Goldman bought protection from AIG on underlying super senior CDO risk. I pointed out that if the underlying super senior CDO were backed by BBB-rated assets like those of GSAMP Trust 2006-S3, it would be worth zero.
When I expressed my view that securitization professionals knew or should have known that deals like GSAMP Trust 2006-S3 were overrated and overpriced, the Goldman spokesman claimed that mine was a “minority opinion.”
In August 2007, I publicly challenged the fact that AIG took no write-downs whatsoever for its credit default swaps on underlying mortgage related “super senior” positions. I told the Wall Street Journal that AIG’s claim was not only incorrect, it was a material misstatement, and not a fair representation of AIG’s financial health.
I explained that as just one example, AIG had written an aggregate $19.2 billion in credit default swaps on super senior tranches (allegedly safer than AAA-rated tranches) backed by BBB-rated (ostensibly investment-grade) tranches of residential mortgage-backed securities. AIG’s exposure included CDO-squared deals (collateralized debt obligations comprising a portfolio of collateral comprising tranches of various CDOs backed by tranches of residential mortgage-backed securities, including subprime loans).
In simple terms, the portfolio of collateral backing the super-seniors was in such bad shape that losses would eat into the “super-safe, super senior” tranches. Some of the super-senior tranches already had huge mark-to-market losses and a reasonable probability of future actual material principal losses.
I initially spoke to the Wall Street Journal on background. The editor called to ask to make my name public because the paper could not print such an extraordinary allegation—AIG’s material accounting misstatement—unless the Wall Street Journal could cite a credible source. I agreed. When AIG’s spokesperson called me after the article was published, I stood behind my work and my assertion. He asked if I could be mistaken. I assured him I was not mistaken and would be happy to explain how I arrived at my conclusions to AIG’s chief financial officer. That was the last I heard from AIG.
Within months, AIG was cited for “material weakness” in its accounting , yet AIG’s officers faced no accountability for this accounting travesty.
The Goldman spokesman had denied that Goldman could have known these mortgage assets were a problem, but Goldman also acknowledged I had warned about them — and the grave risks they posed — at the time they were created. Goldman’s opinion was proved tragically wrong, and mine was proved correct.
I apologize to Goldman’s lawyers, too, since the Goldman spokesman who called me directly mentioned them at the start of our conversation.
In August 2007, AIG gave a presentation on its exposure to collateralized debt obligations backed by mortgage loans. My analysis showed AIG had tens of billions in exposure to failing securitizations.
Unbeknownst to me, in July 2007, Goldman Sachs and AIG began a prolonged battle over prices and collateral payments for pre-2006 vintage deals on which Goldman had bought protection.
Was the risk that Goldman hedged with AIG as bad as Goldman Sachs Alternative Mortgage Products’ GSAMP Trust 2006-S3? Any risk manager worth their salt would have reasonable doubt about this deal and conduct a fraud audit. If a CDO’s underlying collateral comprised “BBB-rated” tranches backed by such failing mortgage loans, the tranches would have permanent value destruction and zero value. A supposedly super safe “super senior” tranche comprised of these “BBB-rated” CDO tranches would also be worth zero. It was a matter of determining how much of this super-risky product had been stuffed into specific CDO portfolios.
Goldman’s board first learned of its ongoing collateral dispute with AIG in November 2007, and Goldman bought protection against the possibility that AIG would fail. In July 2008, PricewaterhouseCoopers (PWC), the auditor for both Goldman and AIG, briefed Goldman’s board about Goldman’s hot dispute with AIG over its portfolio value. Lloyd Blankfein said AIG was “marking to make-believe.” Goldman’s co-president, Jon Winkelried, questioned PWC about its conflict of interest. Goldman reportedly increased its hedges; it paid $150 million for credit protection on $2.5 billion of debt.
Gary Cohn, president and COO of Goldman Sachs, boasted that Goldman over-hedged its exposure to AIG and might make $50 million if AIG collapsed. That is splendid information, since some (or all) of those hedges may have paid out given the circumstances of the AIG bailout.
Prior to AIG’s September 2008 collapse, Goldman had more than 22:1 leverage (it had less than $5 for every $100 it borrowed), and it increased its Level 3 accounting assets —”black box,” hard-to-value securities for which a firm cannot obtain objective mark-to-market prices—by 27% to more than $96 billion. That meant it could “mark-to-myth” or make up the prices of these hard-to-value assets. Yet in its shareholder letter, Goldman states its “rigorous commitment to fair value accounting” before the financial crisis. Goldman had more than any other investment bank in the black box ($18 billion more than troubled Merrill Lynch, which had just increased its “black box” assets by 70%). If the government hadn’t bailed out the financial system, Goldman would not have been able to get short term funding, and it would have collapsed.
Goldman’s exposure included $4.8 billion in AIG’s ‘agency’ securities that would have required funding in a difficult market if taxpayers hadn’t bailed out AIG. AIG had invested the cash owed to Goldman in deteriorating mortgage-backed assets of unclear origin, making it unlikely AIG could have bought back the securities without taxpayer support.
Goldman CEO Lloyd Blankfein told the Wall Street Journal he “never had reason to suspect” AIG was in trouble. That doesn’t seem plausible. Goldman extracted $7.5 billion in collateral (of $10 billion Goldman sought) on trading positions of more than $22 billion from AIG for more than a year before AIG’s September 2008 meltdown. As of September 2008, Goldman demanded $2.5 billion more, which the bailout provided.
The Fed gave the U.S. taxpayer a raw deal. At the time Goldman got its give-away, Henry Paulson was treasury secretary — he was also Goldman’s CEO when it put on its trades with AIG — and former Goldman chairman. Goldman CEO Lloyd Blankfein was the only Wall Street executive at one of Paulson’s bailout meetings. Goldman was inside the tent advising on the most self-serving way to save itself and gain unfettered access to public funds.
The conflicts of interest were staggering: Hank Paulson was Treasury Secretary and Goldman’s former CEO when the firm executed its AIG trades. Lloyd Blankfein participated directly in bailout discussions as Goldman’s current CEO.
Stephen Friedman served simultaneously as Chairman of the Board of the New York Federal Reserve Bank and on Goldman Sachs’ board. He purchased 50,000 shares of Goldman Sachs before the public knew that Goldman Sachs would receive full payments from AIG with public funds.
Things were looking up for Goldman Sachs, and Friedman was in a better position than the public to know.
Goldman either originated or bought protection from AIG on about $33 billion of the problematic $80 billion of U.S. mortgage assets that AIG “insured” with credit derivatives. Goldman, through origination or the purchase of CDS protection, was involved with twice as much of this specific AIG problem as the next two largest banks involved.
In November 2008, the New York Fed paid 100 cents on the dollar to AIG’s counterparties. Goldman avoided many lawsuits for the CDOs it underwrote and it reaped a windfall in the form of billions in undeserved credit default swap protection. AIG could not have made good without the Fed’s largesse with taxpayer money. Crucially, Goldman avoided appropriate scrutiny of most of its CDO deals. A responsible process would have clawed back billions paid out to Goldman and other counterparties in CDS collateral calls, and would have never paid 100 cents on the dollar for the built-to-fail financial products. Instead, Goldman was rewarded for its role in destabilizing the US economy.
The U.S. taxpayer deserved a much better deal. In late July 2008, SCA, another bond insurer, settled similar contracts for only around thirteen cents on the dollar. In August 2008, Calyon, a French bank also involved in AIG’s transactions, settled disputed financial guarantees with FGIC, a bond insurer facing bankruptcy, for only ten cents on the dollar. Ambac, another bond insurer in need of capital, canceled similar trades for ten cents on the dollar.
The contrast was stark: SCA settled with Merrill for around 13.5% on $3.7 billion of contracts in July 2008. Ambac settled $1.4 billion with Citi for around 60% in August 2008, but unlike AIG, Ambac wasn’t on the brink of insolvency. Most telling, Calyon—a French bank also involved in AIG’s transactions—settled similar contracts with FGIC for only ten cents on the dollar in August 2008, yet Goldman’s contracts with AIG were settled for 100 cents on the dollar via Maiden Lane III purchases.
The November 17, 2009 SIGTARP (“Factors Affecting Efforts to Limit Payments to AIG Counterparties:”) report proved that Goldman’s spokesman had been less than candid with me. Goldman would “not agree to concessions, because it would have realized a loss if it had.” This suggests that Goldman was underhedged and would have suffered material losses without the government bailout.
Goldman had paid $100 million for $1.2 billion in credit default protection against an AIG collapse to account for CDO valuation difference between Goldman and AIG. But the report questioned Goldman’s ability to collect on its hedges if AIG had failed, according to Neil Barofsky’s report. As mentioned before, others reported Goldman paid $150 million for credit protection on $2.5 billion of debt. Still too low. Goldman’s seeming advantage would have quickly disappeared in a volatile market when pricing discounted illiquid assets that lacked transparency.
A competent bankruptcy trustee would have asked for the return of the collateral that Goldman Sachs had already extracted from AIG. Goldman’s collateral extraction was seven times the value of the CDS protection Goldman had purchased from third parties. Moreover, without a government bailout, Goldman would not have been able to collect from its third-party protection provider in a global financial meltdown.
I withdraw my earlier apology to Goldman. Goldman’s exposure was not, as Viniar stated in September 2008, “immaterial whatever the outcome at AIG.” Given Goldman’s key role in AIG’s distress, a reasonable liquidator of AIG may have clawed back most of the $7.5 billion in collateral Viniar claimed as a “hedge.”
Goldman Sachs claims great risk management skills, while it shirks responsibility for its role in the near collapse of the U.S. economy. The former is a myth, and the latter is a dodge. As taxpayer wealth was destroyed, Goldman exploited the financial crisis it helped cause, while the U.S. was (and remains) at war.
Goldman’s CEO, Lloyd Blankfein, quipped to a reporter that he is doing “God’s work,” yet Goldman participated in the transfer of wealth from hard-working taxpayers to fee-seeking agents of corrupt finance. Then Goldman accessed taxpayers’ funds to protect and enrich itself, as did other banks. That’s not only a self-serving interpretation of “God’s work,” it’s a perversion of capitalism.
Goldman’s malfeasance extended far beyond mortgage securities to essential commodity markets. After purchasing Metro International, an aluminum warehousing company, for $450 million in 2010, Goldman orchestrated artificial shortages that increased wait times for aluminum delivery from six weeks to over 16 months. This manipulation cost American consumers more than $5 billion between 2010 and 2013 while generating hundreds of millions in profits for Goldman through inflated storage fees and trading positions.
The firm’s commodity manipulation wasn’t limited to aluminum. In 2024, Goldman settled a decade-long lawsuit for $20 million alongside other major banks for manipulating platinum and palladium prices between 2008 and 2014. The scheme involved sharing confidential consumer data, coordinating pricing adjustments, and creating fraudulent “spoof” orders in markets for metals essential to automotive catalytic converters and other manufacturing. These cases demonstrate that Goldman’s exploitation of market positions for profit at public expense represented a systematic business model rather than isolated misconduct.
Goldman Sachs has become a symbol of the aristocratic tyranny from which our Founding Fathers sought to protect our Republic. Goldman cleaned up at the expense of average citizens. Hard-working U.S. taxpayers bailed out Goldman Sachs, Goldman’s trading partners, and AIG. Goldman grabbed new status as a financial holding company, FDIC debt guarantees, access to near zero-cost taxpayer-subsidized borrowing, new lax accounting standards, and more.
Goldman’s Continued Wealth Extraction: Now Goldman made a killing as the Federal Reserve kept interest rates near zero during its long period of quantitative easing (QE). Goldman reaped windfall profits to replenish its capital, and set aside $16.7 billion for employee compensation, including bonuses, in the first nine months of 2009. Before 2009, Goldman paid mega bonuses for years subsidized by selling hot air. In 2009, Goldman proposed to pay billions in bonuses based on earnings made possible by taxpayer bailouts.
Goldman originated approximately $52.8 billion in mortgage-backed securities during 2005-2006, the peak years for toxic lending. Despite public warnings about predatory lending and fraud dating back to 2000, Goldman failed in its duties as a creator (underwriter) of these CDOs.
When Goldman created collateralized debt obligations (CDOs), it was obliged to perform thorough due diligence. Previous securities frauds (unrelated to Goldman) were public knowledge, and there were multiple multi-year reports of predatory lending and fraudulent loans (Ameriquest, FAMCO, and many more). Despite self-serving denials by former Fed Chairman Alan Greenspan, there were many studies in the public domain that showed that even new non-fraudulent loans had a higher likelihood of default when zero or slim down payments were made, including a March 2005 report from the St. Louis Fed.
The Cattle Ranch Analogy: Imagine that Goldman packaged a herd of cattle for sale. Industry standards require it to investigate the herd. (Rating agencies do not perform the inspections; it was Goldman’s responsibility.) Cattle had a history of health problems, so Goldman had all the more reason to perform thorough due diligence on each herd. A sample would have revealed that, say, 60% of the healthy-looking herd tested positive for hoof-and-mouth disease, and the disease could possibly infect the others.
Goldman claims it did nothing wrong when it slapped good labels–via complicit rating agencies–on its loan packages, and then sold them. Goldman claims to be good at risk management, yet despite public red flags, it now claims it didn’t know any better.
Goldman tries an evasive maneuver when it says it sold CDOs to “sophisticated,” investors. The damage was so pervasive that retail investors were caught in the web. Moreover, taxpayer money bailed out the financial system and bailed out investors in Goldman’s CDOs. Caveat emptor no longer applies. The unsophisticated public ended up being an unwilling investor.
There was fraud by borrowers and speculation, but there was also massive widespread predatory lending. Most victims were the least sophisticated borrowers. Mortgage lenders engaged in a variety of frauds including phony appraisals, altered documents, hidden fees, lies about the type of loan, and lies about the maximum payments.
Many of Goldman’s “investments” crashed like an airplane made from faulty components. Some of the CDOs Goldman created–including some sold to French banks that traded with AIG–ended up in money market funds (as asset backed commercial paper) bought by retail investors.
Beyond the original problems with Goldman’s CDOs, some appear “built to fail.” Goldman used credit derivatives to transfer the risk of the same losing CDO tranches into other CDOs over and over again, thus multiplying gains for Goldman and multiplying losses for investors.
The Davis Square CDOs exemplify Goldman’s systematic approach to creating toxic securities. French bank Société Générale bought protection from AIG on two tranches of Davis Square VI, a deal Goldman structured and underwrote. According to AIG’s documentation, SocGen got its prices for marking purposes for Goldman’s deals from Goldman creating a clear conflict of interest when Goldman controlled both the creation and valuation of these securities. When German state-owned bank LBBW sued Goldman in 2010 over a $37 million loss on Davis Square VI, they alleged:
“Goldman knew at the highest levels of its organization that its representations to LBBW Luxemburg that the notes merited triple-A ratings and were high grade were blatantly false. Goldman committed fraud and, or, was negligent in marketing and selling the notes to LBBW Luxemburg.”
This lawsuit revealed the broader pattern: Goldman created toxic CDOs, sold them to international banks, and simultaneously structured protection for other parties through AIG. Although it lost the case, the LBBW lawsuit over Davis Square VI demonstrates that Goldman’s problematic CDO practices extended far beyond just the securities involved in AIG’s crisis.
In the fall of 2008, Goldman Sachs became a bank holding company before switching to a less regulated financial holding company in August 2009. This prevented a run on Goldman Sachs and gave it permanent access to Fed funds, taxpayer money. Goldman paid near zero rates for short-term borrowing while it earned profits on the higher rates paid on the capital it is required to deposit with the Fed. Goldman also issued nearly $21 billion in debt guaranteed by the FDIC. The Fed’s near-zero interest rate policy (ZIRP) persisted until 2015. During COVID, the Fed again lowered rates to near zero from March 2010 until March 2022.
On July 16, 2010, Goldman Sachs settled fraud allegations with the SEC for $550 million related to the Abacus 2007-AC1 CDO. The case revealed Goldman’s systematic approach to creating toxic securities while concealing material information from investors. Goldman admitted to no wrongdoing despite the massive settlement.
The Abacus case was far from isolated. Goldman created multiple Abacus CDOs, and AIG wrote protection against several of these deals through credit default swaps. Yet the SEC failed to investigate the broader pattern of Goldman’s Abacus deals or Goldman’s role as a key beneficiary of the AIG bailout that covered these very positions.
AIG held substantial exposure to Goldman’s Abacus CDOs beyond the single deal that generated SEC headlines. According to internal AIG documentation, the insurer wrote credit default swap protection on multiple Abacus deals, creating billions in exposure to Goldman’s toxic securitizations.
A Senate report, Wall Street and the Financial Crisis, investigate this broader Abacus-AIG nexus, exposing the systematic nature of Goldman’s approach to creating and hedging toxic securities.
While Goldman’s executives faced no criminal charges, Stefan Ortseifen, CEO of German bank IKB, was convicted of market manipulation by a German court for his role in the Abacus scandal. IKB was an investor in the Abacus CDO that Goldman underwrote, losing $150 million on the deal.
On July 20, 2007, as credit markets collapsed, IKB issued a press release claiming limited subprime exposure and projected profitability. This was “very far from the truth,” as IKB was drowning in losses from Goldman’s toxic CDOs.
In August 2013, former Goldman executive Fabrice Tourre was found liable for fraud by a jury in connection with the Abacus deal. Tourre was fined $825,000 and banned from the securities industry. However, as retired SEC lawyer James Kidney revealed at his 2014 retirement party, the SEC was “too timid and fearful” to pursue charges against senior Goldman executives.
Kidney had urged the SEC to pursue Tourre’s superiors, but senior SEC officials made it clear they were “just punching their ticket” rather than seeking meaningful accountability.
The Abacus deals exemplified what I described in my 2003 book as “built-to-fail” structures. Goldman worked with hedge funds like Magnetar to create CDOs designed to benefit short sellers at the expense of long investors.
The Magnetar Strategy (as I explained to the Wall Street Journal):
“Many hedge funds realized early on that the loans and securities that went into CDOs were extremely toxic, and they designed structures to exploit that. The trade was to go long equity—hiving the excess spread from a CDO—and short the mezzanine tranches.”
Key insight: Although equity is supposed to take “first loss,” it was actually the least risky tranche and very lucrative when structured properly. It earned the cash waterfall previously reserved for “investment grade” investors.
The most outrageous aspect of the Abacus scandal was that taxpayers ultimately covered Goldman’s Abacus-related losses through the AIG bailout. While Goldman paid $550 million to settle SEC charges, it received far more through taxpayer-funded AIG payments on the very same deals.
Of Goldman’s original $22+ billion in notional amount of outstanding credit default swap contracts with AIG, of which approximately $20 billion were against a portfolio of multi-sector CDOs. Goldman has already extracted $8.4 billion from AIG through collateral calls on the CDS position and believed the actual drop in value of the position was $9.6 billion. The government allowed Goldman to keep the $8.4 billion it had already extracted when government should have demanded its return.
The Fed used a special purpose entity called Maiden Lane III to purchase $14 billion of the problematic CDOs for 100 cents on the dollar. Goldman already had $8.4 billion in collateral and the Fed provided a $5.6 billion loan for the CDO purchases for a total of $14 billion on this portion of the bailout. Another $8.2 billion of Goldman’s deals—including synthetic Abacus CDOs—remained with AIG with $1.6 billion in collateral applied. Taxpayers bailed out this remaining position through continued AIG support.
The Abacus case revealed Goldman’s systematic approach to CDO creation:
The Abacus scandal stands as a perfect example of how Goldman engineered a system to profit from “fraud” while taxpayers absorbed the losses. Until meaningful accountability is imposed, the fundamental corruption that nearly destroyed the global economy remains intact.
The following sections provide more context about these settlements and additional information about related pattern-of-conduct violations.
U.S. Securities and Exchange Commission. “Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO.” Press Release 2010-123, July 15, 2010.
U.S. Securities and Exchange Commission. “SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages.” Press Release 2010-59, April 16, 2010.
Vialli, Paul. “Massachusetts, Goldman in $60 million subprime accord.” Reuters, May 11, 2009.
Beshkin, Abigail. “Mass. Reaches $60 Million Settlement With Goldman Sachs.” WBUR News, May 11, 2009.
Additional context from the Reuters source: Goldman Sachs agreed to pay up to $60 million to settle a Massachusetts probe into whether its subprime mortgage securitization business had encouraged unfair loans., with the funds used to help over 700 Massachusetts residents keep their homes through mortgage modifications.
Note: Massachusetts Attorney General Martha Coakley also secured a $102 million settlement with Morgan Stanley in June 2010 and a $52 million settlement with RBS in 2011 for similar subprime lending practices
Chung, Juliet. “Goldman settles lawsuit over subprime bet for $27.5 million.” Reuters, February 11, 2016. https://www.reuters.com/article/us-goldman-sachs-settlement-cdo-idUSKCN0VK2E3/.
Stempel, Jonathan. “Judge rules Goldman must face class-action lawsuit by investors.” Reuters, January 23, 2014. https://www.reuters.com/article/business/judge-rules-goldman-must-face-class-action-lawsuit-by-investors-idUSL2N0KX1I1/
As we saw above, Goldman wasn’t acting alone – the RMBS “fraud” was industry-wide systematic misconduct involving all major Wall Street banks. However, Goldman’s $5.06 billion settlement was among the largest, requiring the bank to pay $2.385 billion in civil penalties and provide $1.8 billion in consumer relief.
U.S. Department of Justice. “Goldman Sachs Agrees to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage-Backed Securities.” Office of Public Affairs, April 11, 2016.
U.S. Department of Justice, Eastern District of California. “Goldman Sachs to Pay More than $5 Billion for Misconduct Relating to Mortgage-Backed Securities.” April 11, 2016.
Son, Hugh and Mohsin, Saleha. “Goldman Sachs to pay $5 billion in U.S. Justice Dept mortgage bond pact.” Reuters, April 11, 2016.
Mitchell, Josh. “Goldman Sachs to pay $5.1 billion for deceptive mortgage practices.” CBS News, April 11, 2016.
U.S. Department of Justice. “Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion.” Office of Public Affairs, October 22, 2020.
U.S. Department of Justice, Eastern District of New York. “Goldman Sachs Resolves Foreign Bribery Case And Agrees To Pay Over $2.9 Billion.” October 22, 2020.
Vialli, Paul and Shen, Lucinda. “Goldman Sachs agrees to pay more than $2.9 billion to resolve probes into its 1MDB scandal.” CNBC, October 22, 2020.
Stempel, Jonathan. “Goldman Sachs criminal case over 1MDB formally ends.” Reuters, May 6, 2024.
Vialli, Paul. “SEC wins as ex-Goldman executive Tourre found liable for fraud.” Reuters, August 2, 2013.
Neuman, Scott. “Goldman Trader ‘Fab’ Tourre Liable For Billion-Dollar Fraud, Jury Says.” NPR, August 1, 2013.
Stempel, Jonathan. “Big fine imposed on ex-Goldman trader Tourre in SEC case.” Reuters, March 12, 2014.
Henning, Peter. “Ex-Goldman trader Tourre won’t appeal SEC fraud case verdict.” Reuters, May 27, 2014.
Goldman’s settlements were part of a broader pattern of systematic fraud across Wall Street.
U.S. Department of Justice. “UBS Agrees to Pay $1.435 Billion for Fraud in the Sale of Residential Mortgage-Backed Securities.” Office of Public Affairs, August 14, 2023.
U.S. Department of Justice, Eastern District of New York. “UBS Agrees to Pay $1.435 Billion to Resolve Claims That It Made Misrepresentations in the Sale of Residential Mortgage-Backed Securities.” December 2, 2024.
The Wall Street Journal highlighted my analysis in seminal articles, explaining to the general public that Goldman played a much bigger role in the mortgage bets that nearly felled AIG than the Treasury, the Fed, or Goldman itself publicly disclosed.
In December 2009, the New York Times revealed that Goldman Sachs bundled bad debt and then bought credit default protection and made other bets against it as both hedges and gain-making positions.
The Financial Times and other financial news outlets covered my warnings prior to the crisis. For more details see Tavakoli Structured Finance’s press section.
For details see Tavakoli Structured Finance’s video section. Some historical content is only available to premium subscribers of the various broadcast outlets.
My analysis also contributed to legal proceedings and regulatory investigations. Hank Greenberg’s lawyers sought to have Federal Reserve Chairman Ben Bernanke testify in his lawsuit over the AIG bailout, with the case highlighting how taxpayer money transformed a private dispute into a matter of public interest. The case raised critical questions about why AIG’s counterparties and CDO details were kept from public scrutiny and why Goldman’s bailout benefits were initially denied.
For more details see; Bernanke’s Deposition: AIG, Goldman, Merrill and Bailouts.
In February 2010, Representative Darrell E. Issa, the ranking Republican on the House Committee on Oversight and Government Reform, released a previously secret five-page document showing the deals and listing of the bank beneficiaries of the Fed’s decision in light of allegations of conflicts of interest, cronyism, and a cover-up. The New York Fed successfully prevented publication of the document for more than a year.
More than 15 years later, despite overwhelming evidence of fraud and conflicts of interest:
The fundamental issues that led to the crisis remain unresolved:
Goldman’s role in the AIG crisis reveals how financial engineering can privatize gains while socializing losses on an unprecedented scale. The case stands as a defining example of how political connections can override market forces, democratic accountability, and basic fairness in the American financial system.
Now that the crisis is over, we should ask Goldman Sachs — and all of AIG’s other trading partners involved in these trades — to unwind credit default swap contracts and buy back mortgage assets at full price to bailed out entities like AIG. Alternatively, we can impose a special tax. Instead of calling it a windfall profits tax, we might label it a “hot air” profits tax.
Immediate Actions Required: The Fed abused the taxpayers’ trust when it bailed out AIG’s trades for 100 cents on the dollar. The Fed claims its loan for purchases of the CDOs may be paid back, but that is only 40% of what taxpayers are owed. The loan was only for the 40 cents on the dollar that remained after Goldman (and others) already took billions out of AIG. The purchases should be reversed, and taxpayers should be paid 100 cents on the dollar–the original principal amount (less interim principal payments). The proceeds can be used to pay down AIG’s public debt.
Goldman Sachs has become a symbol of the aristocratic tyranny from which our Founding Fathers sought to protect our Republic. As Lloyd Blankfein claimed to be doing “God’s work,” Goldman participated in the transfer of wealth from hard-working taxpayers to fee-seeking agents of corrupt finance.
The Goldman-AIG scandal stands not as ancient history, but as a warning of what happens when financial institutions become more powerful than the governments supposed to regulate them.
Throughout this analysis, the term “fraud” appears in quotation marks in certain instances. While Goldman Sachs paid $550 million to settle SEC securities fraud charges and billions more in other settlements, the firm typically settled “without admitting or denying wrongdoing” under standard SEC settlement practice.
The quotation marks acknowledge this legal distinction while recognizing the underlying conduct that prompted these massive financial penalties. When an institution can extract billions from taxpayers through a crisis it helped engineer, then settle fraud charges for a fraction of those gains without legal admission, it demonstrates how regulatory settlements can become merely a cost of doing business rather than meaningful accountability.
The evidence presented in this analysis speaks for itself regarding the nature of Goldman’s conduct, regardless of legal technicalities in settlement agreements.
This summary analysis represents original research conducted during and after the 2008 financial crisis. The author was among the first to publicly challenge AIG’s accounting practices and to expose Goldman’s central role in AIG’s near-collapse. Despite pressure from Goldman Sachs, including direct contact from Goldman representatives mentioning the firm’s lawyers, this information was made public in the interest of transparency and accountability.
Goldman Sachs either underwrote or bought protection via credit default swaps on the majority of the flawed collateralized debt obligations purchased from AIG for one hundred cents on the dollar by the Fed’s Maiden Lane II vehicle. This fact was obscured from reporters and the public during the government’s massive bailout of AIG that benefited Goldman Sachs and its business partners. I was the first to uncover this and put this information in the public domain, despite pressure from Goldman Sachs.
Janet Tavakoli is the president of Tavakoli Structured Finance and a globally recognized expert in structured finance and credit derivatives. She was the first investigative analyst to uncover and publish Goldman Sachs’ undisclosed role in AIG’s 2008 collapse, revealing that Goldman’s $20 billion in transactions helped precipitate the insurer’s near-bankruptcy and subsequent taxpayer bailout.
Ms. Tavakoli’s analysis exposed how Goldman underwrote many of the collateralized debt obligations that comprised the underlying risk of protection Goldman bought from AIG, while simultaneously serving as AIG’s largest counterparty. Despite pressure from Goldman Sachs to suppress this information, she put these critical details into the public domain.
Her investigative work on AIG was later cited by the Wall Street Journal, New York Times, and influenced Congressional investigations. She has advised financial regulators, testified as an expert witness in major financial litigation, and authored definitive works on the credit derivatives and CDO structures at the center of the financial crisis.
For comprehensive analysis of structured finance investigations and credit derivatives, consult Tavakoli Structured Finance.
AIG, “Residential Mortgage Presentation,” 9 August 2007.
Prospectuses for individual CDOs.
AIG collateral memoranda (CBS News, 2009).
Tavakoli, Janet. AIG CDO portfolio composition and performance analysis (Example: Abacus 2005-2 composition in January 2008 attached) via Tavakoli Structured Finance. Final Term Sheet for Abacus 2005-2.
Goldman Sachs earnings call transcripts.
David Reilly. “In Subprime, AIG Sees Small Risk; Others See More.” Wall Street Journal, August 13, 2007. – Janet Tavakoli says AIG failed to disclose material losses on credit default swaps on super-senior tranches of collateralized debt obligations.
Carrick Mollenkamp, and Serena Ng. ‘Wall Street Wizardry Amplified Credit Crisis.” Wall Street Journal, December 27, 2007.
Serena Ng and Carrick Mollenkamp. “Goldman Fueled AIG’s Gambles.” Wall Street Journal, December 12, 2009.
Gretchen Morgenson and Louise Story. “Banks Bundled Bad Debt, Bet Against It and Won.” New York Times, December 23, 2009.
Goldstein, Matthew. “AIG filing casts doubt on “limited exposure” [to subprime loans] claim.” Reuters, January 10, 2010.
Carrick Mollenkamp, and Serena Ng. “Senate’s Goldman Probe Shows Toxic Magnification.” Wall Street Journal, May 2, 2010.
Barofsky, Neil (Inspector General). (2009, Nov 17). Factors Affecting Efforts to Limit Payments to AIG Counterparties: report SIGTARP-10-003 Office of the Inspector General for the Troubled Asset Relief Program.
Issa, Darrell E. “Letter from Congressman Issa to William C. Dudley on Circumstances Surrounding AIG Bailout” – Congressman Darrell E. Issa – Oct 30, 2009. Citation: “According to Janet Tavakoli of Tavakoli Structured Finance, ‘There’s no way these should have paid off at par. AIG was basically bankrupt.'” See Richard Teitelbaum and Hugh Son, “New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers,” Bloomberg.com (October 27, 2009)
Levin, C., & Coburn, T. (2011, April 13). Wall Street and the Financial Crisis: Anatomy of a Financial Collapse. Majority and Minority Staff Report, Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, United States Senate.
Angelides, P. (Chair). (2011, February 25). The financial crisis inquiry report: Final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States.
SEC settlement documents with Goldman Sachs (linked in appropriate sections of this article).
Securities and Exchange Commission. “SEC Charges Merrill Lynch with Misleading Investors in CDOs.” December 12, 2013.
Kocieniewski, David. “A Shuffle of Aluminum, but to Banks, Pure Gold.” The New York Times, July 20, 2013.
U.S. Senate Permanent Subcommittee on Investigations. “Wall Street Bank Involvement with Physical Commodities.” November 20, 2014.
Home, Andy. “The Goldman Sachs guide to LME warehousing.” Reuters, November 26, 2014.
Mason, Josephine. “Senate panel accuses Goldman Sachs of manipulating metal.” CNBC, November 20, 2014.
Mason, Josephine. “Under fire, Goldman offers way round warehouse lines.” Reuters, July 31, 2013.
“Goldman Sachs, “HSBC & Others to Pay $20M Over Metal Trading Probe.” Yahoo Finance, December 2024.
“Goldman Sachs Sells Aluminum Business to Swiss Firm.” Reuben Brothers, December 2014.
Tavakoli, Janet. “2008 Crisis: Bailouts Without Accountability (2025 Update).” Tavakoli Structured Finance. July 19, 2025.
Tavakoli, Janet. “AIG Bailout Litigation and Crisis Accountability: 2025 View.” Tavakoli Structured Finance, August 7, 2013. Updated June 2025.
Tavakoli, Janet. “Bear Stearns Bailout: 2007 Warning Predicts 2008 Crisis.” LIPPER HedgeWorld, June 27, 2007. Updated with Epilogue July 2025.
Tavakoli, Janet. “Comments on SEC Proposed Rules and Oversight of NRSROs” Letter to Securities and Exchange Commission, February 13, 2007.
Tavakoli, Janet. “Dicey Deals Done Dirt Cheap: (MBIA and Ambac Face Massive Downgrades: Monoline Crisis) Tavakoli Structured Finance. Originally published January 3, 2008 | Updated July 2025.
Tavakoli, Janet. “Goldman Sachs, AIG, and IKB: Structured Finance Disputes – Updated Analysis.” Tavakoli Structured Finance, July 10, 2013. Updated June 2025.
Tavakoli, Janet. “LBBW vs Goldman Sachs and TCW” Davis Square VI Case Outcome.” Tavakoli Structured Finance, October 5, 2015. Updated June 2025.
Tavakoli, Janet. “MF Global Bankruptcy & Jon Corzine’s TRS: $1.6B Went Missing .” Tavakoli Structured Finance, June 2025.
Tavakoli, Janet. “Merrill Lynch CDO Crisis: Analysis & Aftermath (2008-2025).” TSF, Originally Published: July 30, 2008. Last Updated: July, 2025
This article comprises a compilation, update, and expansion of previous articles on the Goldman / AIG scandal and revelations that came to light after my initial warnings, available to clients upon request.
Tavakoli, Janet. Structured Finance and Collateralized Debt Obligations. New Jersey: Wiley, 2008.
Tavakoli, Janet. Credit Derivatives and Securitization, 3rd Edition. Chicago: Lyons McNamara, 2022. An update of the first two editions published by John Wiley & Sons with a detailed explanation of how credit derivatives amplified risk during the financial crisis and how they can be legitimately used for protection and profit today.
Tavakoli, Janet. Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street. New Jersey: Wiley, 2009. A chronicle of key events before, during, and after the financial crisis.
Tavakoli, Janet. The New Robber Barons. Chicago: Lyons McNamara, 2012. Comprises the individual articles consolidated into this article and other related financial crisis articles.