http://www.zerohedge.com/article/federal-reserve-moral-hazard-smoking-gun-august-2008-goldman-was-willing-tear-aig-derivativeThe implications of this discovery are huge as they essentially destroy all the arguments presented by the FRBNY about an inability to extract concession out of Goldman (which being the largest AIG CDO counterparty, was the critical negotiating factor). It also casts doubt on the veracity of any arguments presented in Congress by Goldman representatives discussing the potential to take a haircut on their AIG exposure. What this means in plain English is that, in the month before the Fed entered the scene, GOLDMAN SACHS ITSELF OFFERED TO TEAR DOWN THE CDS ON AIG'S CDO PORTFOLIO (we don't use caps lock lightly). This is basically a smoking gun on the moral hazard issue perpetrated by the FRBNY when it got involved, and indicates that through their involvement, Tim Geithner, Sarah Dahlgren or whoever, not only did not save US taxpayers' money, but in fact ended up costing money, when they funded the marginal difference between par (the make whole price given to all AIG counterparties after AIG was told to back off in its negotiations) and whatever discount would have been applicable to the contract tear down that had been proposed by Goldman a mere month earlier. This, more so than anything presented up to now, is the true scandal behind the New York Fed's involvement.
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We hope this is the number one question asked by Chairman Towns of Mr. Geithner. But as the latter will plead the fifth due to his lack of involvement, we kindly suggest that the correct person, the person who can not claim lack of knowledge on the AIG situation due to a prior recusal, and is therefore the right person to grill before a live studio audience, is the FRBNY's Sarah Dahlgren: as it stands, Wednesday will merely be yet another spectacle, in which Geithner will claim stupidity, and this time very likely get away with it: is there any wonder why he agreed to provide testimony so promptly after his "invitation." What about Goldman's Stephen Friedman - did he accept the invitiation yet? How about Goldman's Hank Paulson? It sure must be nice to have the luxury to kindly decline the privilege of providing sworn testimony, and avoid perjury.
Goldman representatives, Lloyd Blankfein among them preferably, have to be on the stand next to Geithner, as they are the people who have bee at the core of this whole problem from the start till bitter end.
Last but not least, was it not Mr. Blankfein who just two weeks ago, before the FCIC committee, noted he had never gotten a request to take less than 100 cents on the dollar on AIG CDS? So what happens if it was he who offered less than 100 cents? Should that maybe have been at least mentioned in passing? Is that some equivalent of perjury, or will the semantics lawyers come out in force?
Just disgusting. I will laugh when I see these suckers go down in flames. THIS IS WHAT HAPPENS WHEN YOU CREATE A GOVERNMENT MONOPOLY OVER MONEY. They all think they can do whatever they want with no repercussions. They do not care about you. You are their slave. The only reason they allow you live is that your tax dollars sustain them.