6 ms·

It will be like it happened to the German banks: When in trouble, tax payers will bail them out.

arbitrage314 11y ago
People like to rip on Goldman, and indeed, they deserve it. One thing which should be noted, though. There were two banks that didn't need a bailout back in '08-'09: Goldman Sachs and JP Morgan. They were forced to take the money by none other than Goldman's ex-CEO: Hank Paulson.
- jessaustin 11y ago
  Goldman (and Paulson) profited hugely by the bailout of AIG. This bailout was focused on securities issued by AIG that GS held, and certainly wouldn't have taken place had the securities been held by e.g. Lehman. Let's rip Goldman for that one, too. Counterparty risk is a bitch, unless you own the Treasury Department.
  - PythonicAlpha 11y ago
    In the case of Greece: As much I remember, one big German bank held many debts of this country in 2010, but the CEO of that bank also was the adviser of the German chancellor. No wonder, the so called rescue-umbrella did also rescue this banks money.
  - deleted 11y ago
    [deleted]
    - jessaustin 11y ago
      That's John Paulson, not Hank Paulson. I don't actually have much of a problem with John. He was never hired by Congress and the President for the benefit of the American public, so he never had a chance to abuse such a position to line his own pockets and those of his cronies.
      - mafribe 11y ago
        You are right, I should have read the article more carefully. I've deleted it so as to avoid confusing others.
        NWDrew72 11y ago
        Upvote for responsible internetting and so-rare-so-refreshing humility.
  - arbitrage314 11y ago
    http://www.businessinsider.com/why-goldman-didnt-need-an-aig-bailout-and-why-it-didnt-make-a-fortune-off-aig-either-2009-4 http://www.businessinsider.com/why-goldman-didnt-need-an-aig...
    - arbitrage314 11y ago
      (In other words, Goldman bought $100 million of credit default swaps against AIG failing.)
    - jessaustin 11y ago
      Oh, well, GS says it did nothing wrong. Moving along! They claim that the potential AIG default had been hedged. So what? The AIG securities were hedges in the first place; apparently that doesn't eliminate counterparty risk! If the public had not stepped in, and GS was forced to call upon the next insufficiently-capitalized insurer in the chain, it is likely that party would also have proved insufficient. After enough layers of recursion, eventually GS would have been left holding a bag of some size, and its precious shareholders would have lost some of their money. And that would have been perfectly OK. You can't claim with a straight face that unemployment would be any higher today in that fairer, more just world. If the Treasury Secretary wasn't a Goldman alumna, there's no way in hell that only the AIG securities held by GS would have been made whole in the way that they were. That is pure corruption, and the verdict of history will be very harsh. [0] http://www.amazon.com/All-Devils-Are-Here-Financial/dp/159184438X http://www.amazon.com/All-Devils-Are-Here-Financial/dp/15918...
      - arbitrage314 11y ago
        I'm truly very sorry if I upset you. I'm just trying to make sure we're on the same page. Goldman is indeed guilty, but not in a way that we agree. Goldman had CDS against AIG imploding, had CDS-of-CDS against AIG's counterparties imploding, etc., etc. The solution to this hedging problem turns out to be the eigenvector of a CDS/exposure matrix, which is kind of fun. Anyway... Goldman's bet was that the whole world would not implode. If there had been no bailout of anyone--you're right--everyone would've failed, including Goldman. In this scenario, there's no doubt in my mind unemployment would be higher today. But, given that someone was saved--anyone at all--Goldman turned out just fine. The cost of this hedge was ~$2.5 billion. For this, they were able to recover $10 billion. So, 75 cents on the dollar. More than they deserve! The real crime has nothing to do with "needing to be bailed out"--this is just the story given to the public--it's the fact that Goldman may have had material nonpublic information about AIG. I think this article sums it up pretty well: http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html http://www.realclearmarkets.com/articles/2010/01/13/goldman_...
mafribe 11y ago
French banks lent much more heavily to Greece than german banks. So it was really a bailout of french banks.

People like to rip on Goldman, and indeed, they deserve it. One thing which should be noted, though. There were two banks that didn't need a bailout back in '08-'09: Goldman Sachs and JP Morgan. They were forced to take the money by none other than Goldman's ex-CEO: Hank Paulson.

jessaustin 11y ago
Goldman (and Paulson) profited hugely by the bailout of AIG. This bailout was focused on securities issued by AIG that GS held, and certainly wouldn't have taken place had the securities been held by e.g. Lehman. Let's rip Goldman for that one, too. Counterparty risk is a bitch, unless you own the Treasury Department.
- PythonicAlpha 11y ago
  In the case of Greece: As much I remember, one big German bank held many debts of this country in 2010, but the CEO of that bank also was the adviser of the German chancellor. No wonder, the so called rescue-umbrella did also rescue this banks money.
- deleted 11y ago
  [deleted]
  - jessaustin 11y ago
    That's John Paulson, not Hank Paulson. I don't actually have much of a problem with John. He was never hired by Congress and the President for the benefit of the American public, so he never had a chance to abuse such a position to line his own pockets and those of his cronies.
    - mafribe 11y ago
      You are right, I should have read the article more carefully. I've deleted it so as to avoid confusing others.
      - NWDrew72 11y ago
        Upvote for responsible internetting and so-rare-so-refreshing humility.
- arbitrage314 11y ago
  http://www.businessinsider.com/why-goldman-didnt-need-an-aig-bailout-and-why-it-didnt-make-a-fortune-off-aig-either-2009-4 http://www.businessinsider.com/why-goldman-didnt-need-an-aig...
  - arbitrage314 11y ago
    (In other words, Goldman bought $100 million of credit default swaps against AIG failing.)
  - jessaustin 11y ago
    Oh, well, GS says it did nothing wrong. Moving along! They claim that the potential AIG default had been hedged. So what? The AIG securities were hedges in the first place; apparently that doesn't eliminate counterparty risk! If the public had not stepped in, and GS was forced to call upon the next insufficiently-capitalized insurer in the chain, it is likely that party would also have proved insufficient. After enough layers of recursion, eventually GS would have been left holding a bag of some size, and its precious shareholders would have lost some of their money. And that would have been perfectly OK. You can't claim with a straight face that unemployment would be any higher today in that fairer, more just world. If the Treasury Secretary wasn't a Goldman alumna, there's no way in hell that only the AIG securities held by GS would have been made whole in the way that they were. That is pure corruption, and the verdict of history will be very harsh. [0] http://www.amazon.com/All-Devils-Are-Here-Financial/dp/159184438X http://www.amazon.com/All-Devils-Are-Here-Financial/dp/15918...
    - arbitrage314 11y ago
      I'm truly very sorry if I upset you. I'm just trying to make sure we're on the same page. Goldman is indeed guilty, but not in a way that we agree. Goldman had CDS against AIG imploding, had CDS-of-CDS against AIG's counterparties imploding, etc., etc. The solution to this hedging problem turns out to be the eigenvector of a CDS/exposure matrix, which is kind of fun. Anyway... Goldman's bet was that the whole world would not implode. If there had been no bailout of anyone--you're right--everyone would've failed, including Goldman. In this scenario, there's no doubt in my mind unemployment would be higher today. But, given that someone was saved--anyone at all--Goldman turned out just fine. The cost of this hedge was ~$2.5 billion. For this, they were able to recover $10 billion. So, 75 cents on the dollar. More than they deserve! The real crime has nothing to do with "needing to be bailed out"--this is just the story given to the public--it's the fact that Goldman may have had material nonpublic information about AIG. I think this article sums it up pretty well: http://www.realclearmarkets.com/articles/2010/01/13/goldman_sachs-aig_its_likely_worse_than_you_think_97587.html http://www.realclearmarkets.com/articles/2010/01/13/goldman_...

mafribe 11y ago

French banks lent much more heavily to Greece than german banks. So it was really a bailout of french banks.