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« HOT LINKS: SEC Seeks Stock Exchange Only For The Rich | Main | Cleansing Of The Banking Soul At Barclays »
Monday
Feb112013

Hank Greenberg: 'Geithner & Paulson Smelled Blood In The Water'

Backdoor bailout.

'Paulson and Geithner rolled AIG to bailout Goldman Sachs and other favored institutions.'

Start watching at the 3-minute mark.  Excellent interview.  He blames Eliot Spitzer for the start of AIG's problems, then discusses Geithner and Paulson.

Greenberg is the former Chairman of AIG.  Broadcast Jan. 31, 2013.

***

WSJ Interview With Hank Greenberg

The former chairman of AIG wonders why Goldman Sachs got paid in full on its AIG exposure while AIG itself was forced into slow-motion liquidation.

How did it all come apart so quickly? Here are the pieces Mr. Greenberg says he sees falling into place. In 2005, a trade group called the International Swaps and Derivatives Association got together and drafted new standards for the kinds of credit default swaps AIG had been writing.

Previously, Mr. Greenberg explains, losses to the underlying securities were paid off at maturity. Now, cash payments would have to be forthcoming to cover any drop in value or credit downgrades even before any losses were realized.

"I don't know whether Goldman Sachs was the force behind the ISDA change or Deutsche Bank," Mr. Greenberg concedes. "That's something investigative reporters are going to have to spend time digging out."

The next piece fell into place, he says, with recent reports in the press about how, at the top of the housing bubble, "a couple of people there [at Goldman Sachs], bright guys, decide the housing market is going to collapse." Goldman went to work creating new subprime housing-backed derivatives , Mr. Greenberg says, and "began marketing the hell out of them and at the same time shorting them" (or betting they would fall in value).

Bingo. When the housing boom imploded, Goldman demanded giant cash collateral payments from AIG on a "mark to market" basis for housing-backed securities whose price was plummeting even if the underlying payment streams were intact. True, Goldman was hardly the only one demanding cash, but Mr. Greenberg is suspicious about the size of the payments Goldman demanded based on Goldman's own "marks" (i.e. estimate of the securities now-depressed value). "Goldman had the lowest marks on the Street by everything I hear," he says. "There was no exchange. Where was the price discovery? It was all in the eye of the beholder."

In short, it added up to a perfect trap for AIG. As panic spread through the financial sector, impossible amounts of cash were required of the firm under insurance contracts that had years to run and (as Mr. Greenberg argues and events seem to be showing) would likely end up performing adequately in the long run.

Continue reading...

 

 

More on Spitzer and Greenberg.  This is pretty funny:

Spitzer Battles Bartiromo Over AIG: 'You Are Under Oath Right Now Maria'

 

 

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Reader Comments (12)

'If AIG Decides To Sue, People Will Burn That Headquarters To The Ground!'

http://dailybail.com/home/if-aig-decides-to-sue-people-will-burn-that-headquarters-to.html

Neil Barofsky
Feb 13, 2013 at 1:25 AM | Registered CommenterDailyBail
Feb 13, 2013 at 1:26 AM | Registered CommenterDailyBail
The former chairman wonders why Goldman Sachs got paid in full on its AIG exposure while AIG itself was forced into slow-motion liquidation.

http://online.wsj.com/article/SB10001424052748704130904574644693895033518.html

A very good read.
Feb 13, 2013 at 1:27 AM | Registered CommenterDailyBail
My default is set to regard 90% of the stuff Greenberg says as 100% bullshit. However, I've never considered the point he's making about why AIG was essentially force-fed the 85B. In particular, was AIG actually doing their darnedest to come up with cash every single time Goldman or JPM made a collateral call? Or were they giving pushback? I guess I don't have any understanding of AIG's funding needs, etc. Were they under some kind of pressure to immediately fulfill their obligations with counterparties or did they have the ability to drag their feet?
Feb 13, 2013 at 2:31 AM | Unregistered CommenterDr. Pitchfork
Pitch

As I remember it, they were getting new collateral calls from Goldman, and presumably others, pretty frequently. It was a final collateral call from Goldman that forced AIG to beg for a bailout. I don't know exactly how much time they would be given to meet the call but no more than a few days. The ratings agencies would downgrade the CDO, and Goldman would demand more collateral. Like clockwork. Week after week during 2007 and 2008.

Goldman was slowly killing AIG, and on purpose, but I'm sure they found the collateral payments also helped boost their own cash levels at a time when everyone needed cash.

This is what I found interesting from the WSJ article on the ISDA.

Snip

"How did it all come apart so quickly? Here are the pieces Mr. Greenberg says he sees falling into place. In 2005, a trade group called the International Swaps and Derivatives Association got together and drafted new standards for the kinds of credit default swaps AIG had been writing.

Previously, Mr. Greenberg explains, losses to the underlying securities were paid off at maturity. Now, cash payments would have to be forthcoming to cover any drop in value or credit downgrades even before any losses were realized.

"I don't know whether Goldman Sachs was the force behind the ISDA change or Deutsche Bank," Mr. Greenberg concedes. "That's something investigative reporters are going to have to spend time digging out."
Feb 13, 2013 at 3:30 AM | Registered CommenterDailyBail
Right, so regarding your second point, did AIG already have a large exposure in CDS with Goldman and others before the rule changes? Moreover, I wonder if the rule changes applied to existing contracts or only to new ones. Again, HG has massive incentive to talk out of his hole when giving his version of events.
Feb 13, 2013 at 11:48 AM | Unregistered CommenterDr. Pitchfork
Pitch

Not sure the answer to your questions but Janet Tavakoli has some great detail here.

http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-nearly-bank_b_361342.html
Feb 13, 2013 at 12:25 PM | Unregistered CommenterDailyBail
Pitch

Here's more from one of JT's stories:

In December, the Wall Street Journal explained to the general public that Goldman fueled AIG's gambling and played a much bigger role in the mortgage bets that nearly felled American Insurance Group (AIG) than the Treasury, the Fed, or Goldman itself publicly disclosed.

http://online.wsj.com/article/SB10001424052748704201404574590453176996032.html
Feb 13, 2013 at 12:28 PM | Registered CommenterDailyBail
Feb 13, 2013 at 12:30 PM | Registered CommenterDailyBail
Janet Tavakoli Wonders: Did Friedman, Paulson & Geithner Conspire To Hide Goldman's Role In The AIG Crisis?

http://dailybail.com/home/janet-tavakoli-wonders-did-friedman-paulson-geithner-conspir.html

More here.
Feb 13, 2013 at 12:31 PM | Registered CommenterDailyBail
Feb 13, 2013 at 12:32 PM | Registered CommenterDailyBail
To me, imho, (Resident and Chair of Hypo-Economics Fow Campridge U.) Hank Greenberg seems as a demon of the crash and bailout. But, to hear him speak he comes across as honest and forthcoming. HHmmm...are there two Hank Greenbergs? I thought E.Spitzer was a hero who singlehandedly went after WallStreet billionaires. How could Spitzer have been overzealous when the B-aires were stealing B-ions from the american economy?
Greenberg seems sincere, but WallStreet continues to be seen as a menace to society. Just for fun, watch Spitzer and Ken Langone as they star in the playful movie "Kick-Ass." I like Spitzer, but Greenberg would probably make a good neighbor. Perhaps his 'high risk' insurance business was ill-conceived. America will never recover from WallStreet/Pentagon largesse.
Thankyou for your support.
Feb 14, 2013 at 9:37 AM | Unregistered Commenterprofnasty

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