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"The Goldman transaction was a straight equity deal, with a big emphasis on dividends." No. They were derivatives. Goldman was to pay those heavy dividends b
by Daniel_Newby 17y ago
"The Goldman transaction was a straight equity deal, with a big emphasis on dividends."
No. They were derivatives. Goldman was to pay those heavy dividends by executing credit default swaps they had purchased from AIG. Trouble is, the securities underlying the swaps were overcommitted, meaning the swap prices would be driven way down in an open market. And Goldman didn't own the securities. And the securities hadn't necessarily defaulted. And AIG had no money.
This was solved by the Munger/Buffet helping arrange for the taxpayer to pay off AIG's gambles at 100% without Goldman even delivering the securities underlying the swaps.
Make no mistake, the Goldman deal was a naked derivative play combined with brazen government corruption.
- megaduck 17y agoThere's no question that Goldman had to pay off those dividends with some kind of shenanigans. IIRC, they were up to their eyeballs in default swaps and CDOs, both of which were beyond toxic at the time. That 10% payout was going to have to come from somewhere. However, my understanding was that from Berkshire's perspective, it was a straight equity investment for preferred stock. They didn't really care where the dividend cash came from, so long as they got paid. So, if it was a derivative play, it was an indirect one. Berkshire never had those default swaps on its books. That's how I remember it going down, at least. It's entirely possible that I got some of this wrong.