Goldman Sach's: 3 card monte
In a letter to the WSJ a managing director explains why it was the right thing for AIG to use government money to pay goldman the billions in dollars of credit insurance it owed them. Here is how it works:
1. Goldman buys bonds
2. Goldman insures bonds through AIG
3. AIG posts collateral to Goldman to show it can pay if bonds default
4. AIG has insufficient collateral so Goldman buys CDS against AIG
5. AIG is bailed out by the government so Goldman is unable to collect on CDS against AIG
6. AIG must either pay Goldman amount that it owes making goldman whole or goldman forces AIG to declare bankruptcy so that Goldman can collect on CDS making goldman whole
7. Goldman uses the outrage over the issue as a huge distraction so that we ignore that they were able to make huge profits in the first quarter by buying distressed aig assets and quickly flipping them at much higher market prices. Able to do so because AIG is run by a ex-goldman employee and Treasury is in their pocket too.
What a bunch of snakes in the grass.