Scandal Atop Scandal

Written by David Frum on Tuesday March 17, 2009

$170 billion is so much money that it can support more than one scandal.

As the Obama administration bursts with outrage over executive payouts that the administration had previously approved, there is a risk of overlooking another and in some ways more shocking scandal. Thanks to Steve Clemons and the FT for reminding us.

Last September, it was reported that Goldman Sachs had more than $20 billion of exposure to AIG. This fact was of more than a little interest, since the then Treasury Secretary had of course been a former Goldman CEO. He had sold his stock and so had no direct stake in the firm, but its success or failure might well have continued to matter emotionally to him.

So it was urgently important to rebut the story. The FT quotes this Reuters story:

NEW YORK (Reuters) - Goldman Sachs Group Inc rejected as “seriously misleading” a published report on Sunday that said the Wall Street bank had as much as $20 billion of exposure to the troubled insurance giant American International Group Inc.

Lucas van Praag, a Goldman spokesman, on Sunday said the Times article was wrong to suggest that Goldman had reason to be concerned about AIG’s problems.

“Although we have said many times on the record that our exposure to AIG was, and is, not material, the reporter chose to pursue a story line which suggests, by innuendo, that is not the case,” he said in an e-mailed statement.

“For the avoidance of doubt, our exposure to AIG is offset by collateral and hedges and is not material to Goldman Sachs in any way,” he continued. “The conclusions about our interests that readers of the New York Times article are invited to reach are seriously misleading.”

Now AIG’s counterparty list has been published.

Goldman Sachs is at the top. The FT:

Goldman is the proud recipient of $12.9bn in payments from AIG and AIGFP. (Specifically, $2.5bn from CDS collateral postings, $5.6bn from Maiden Lane III payments for CDS positions, and $4.8bn in payments related to securities lending. The Maiden Lane III portfolio was, of course, created in December specifically help reduce the burden of CDS collateral postings facing AIGFP proper - it bought the underlying CDO tranches from the CDS counterparties).

For the record then, it certainly was not the NYT that was “seriously misleading”. ... [It is] Goldman [that] is - gosh - the largest recipient, via AIG, of taxpayers’ money.

Category: News