Paulson led bailout of AIG; saved $20 billion for Goldman Sachs
This is another astounding article by the very respectable Gretchen Morgenson of the NY Times.
It is astounding because of all that is revealed in the opening paragraphs.
As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.
The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.
Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.
Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.
- Only one Wall Street executive was in the war room, and he was from Goldman Sachs (GS), the firm Paulson headed up before becoming Treasury Secretary.
- Lehman, with whom GS did not have an overly large trading position, was allowed to go under.
- AIG, with whom GS did have a large position, was handed an $85 billion handout.
Even if you don't ascribe to all of this as a looting operation (which I do), hopefully you can allow that perhaps this doesn't look too good from an appearances standpoint.
At this point I think we're going to have to admit that, at times like these, the revolving door between Wall Street and the Treasury Department is too laden with conflicts of interest to be considered a good idea.