Requiem For A Firm
A great article about who and what actually brought down AIG and started the financial fizzle we’re in. It’s a way more direct and straightforward look than anything I have seen yet. I also like that it points out when AIG made mistakes and when they were made scapegoats.
For those of you who want to skip to the last act, see below:
But in the case of the subprime-mortgage credit-default swaps, Cassano had agreed to several triggers, including A.I.G.’s losing its AAA credit rating, that would require the firm to post collateral. If the value of the underlying bonds fell, it would fork over cash, so that, for instance, Goldman Sachs would not need to be exposed for more than a day to A.I.G. Worse still, Goldman Sachs assigned the price to the underlying bonds — and thus could effectively demand as much collateral as it wanted. In the summer of 2007, the value of everything fell, but subprime fell fastest of all. The subsequent race by big Wall Street banks to obtain billions in collateral from A.I.G. was an upmarket version of a run on the bank. Goldman Sachs was the first to the door, with shockingly low prices for subprime-mortgage bonds — prices that Cassano wanted to dispute in court, but was prevented by A.I.G. from doing so when he was fired. A.I.G. couldn’t afford to pay Goldman off in March 2008, but that was O.K. The U.S. Treasury, led by the former head of Goldman Sachs, Hank Paulson, agreed to make good on A.I.G.’s gambling debts. One hundred cents on the dollar.
ps. It seems Michael Lewis is leaning towards a Goldman Sachs conspiracy theory (whether intentional or incidental), which I don’t find very hard to believe. They had key alumni all over the place and the current corporate leaders had unrivaled access to key government leaders.