NEW YORK, March 17 Goldman Sachs Group Inc
(GS.N) got the largest chunk of U.S. taxpayer money that found
its way to companies that were on the other end of certain
transactions with American International Group Inc (AIG.N).
Rep. Paul Kanjorski, whose House Subcommittee on Capital
Markets and Insurance will quiz AIG Chief Executive Edward
Liddy, said last weekend the counterparties and bonuses paid to
AIG employees will topics for investigation at a hearing on
A day ahead of the hearing, Reuters posed 10 questions to
Goldman about these issues. The following are the questions and
the answers from Goldman spokesman Michael DuVally:
QUESTION: If Goldman Sachs was collateralized and hedged on
its AIG positions, why did it take $12.9 billion of taxpayer
ANSWER: "Goldman Sachs has maintained that its exposure to
AIG was collateralized and hedged. The majority of Goldman
Sachs' CDS (credit default swap) exposure to AIG Financial
Group was collateralized. That means that Goldman Sachs had
collateral. To the extent it wasn't collateralized, Goldman
Sachs hedged its exposure via the credit default swaps market.
If the government had allowed AIG to fail, Goldman Sachs would
have received its collateral. A credit event would be
triggered, and Goldman Sachs would receive a payout from the
credit default swap insurance that it had. This is from other
Separating out the money Goldman received due to AIG's
securities lending obligations, DuVally said: "AIG was not
allowed to fail. So there was no payout from the hedges.
Additionally after the bailout there was some additional
deterioration in AIG's position. Under the terms of the
contracts that Goldman Sachs had with AIG, it was entitled to
collateral. We were always fully collateralized and hedged."
QUESTION: Did then-U.S. Treasury Secretary Henry Paulson or
his aides discuss Goldman's exposure to AIG with Goldman Chief
Executive Lloyd Blankfein or any other executive or director of
the bank? Also, if they did, what was the substance of the
conversations, and did Goldman Sachs take any position on
whether AIG should be saved?
ANSWER: "Goldman Sachs was not party to any discussions
about the bailout of AIG."
QUESTION: Did Goldman do any due diligence on AIG before
buying credit default swaps (CDS) from it?
ANSWER: "We do extensive due diligence on all our
QUESTION: From what other institutions did Goldman buy CDSs
to insure its collateralized debt obligations or other
ANSWER: "We do not disclose counterparty information."
QUESTION: How did Goldman account for the counterparty risk
in its dealings with AIG?
ANSWER: "We made sure our positions with AIG were
collateralized and hedged."
QUESTION: Did Goldman have more exposure to AIG through
CDSs than that disclosed by AIG on Sunday? If yes, how much
is/was that exposure?
ANSWER: "The disclosures by AIG encompass all the
collateral received by Goldman Sachs on its credit default swap
positions with AIG financial products for the period from
September through the end of the year."
QUESTION: Why did Goldman decide to close its securities
lending transactions with AIG?
ANSWER: "AIG could not return the cash it owed to Goldman
Sachs under the terms of the transaction. It was the terms of
the agreement. Note that Goldman Sachs had the ability all
along if AIG could not honor its transaction to sell those
securities into the market. Note that those securities which
still had value went back to the government."
QUESTION: Was the value of the securities returned to AIG
less than the cash received from AIG?
ANSWER: "They were equivalent. Under the terms of the
agreement if the securities Goldman Sachs borrowed had declined
in value, Goldman Sachs had the right to request that part of
the cash collateral it posted to AIG be returned."
QUESTION: Has Goldman Sachs received more money from AIG to
satisfy counterparty obligations since the end of 2008, and
what did it receive before Sept. 16?
ANSWER: "We are not disclosing the amount of collateral we
received from AIG before the government bailout nor after the
end of 2008. We can say that our notional exposure to AIG is a
fraction of what it was at the time of the September bailout.
And as has been the case, our exposure remains collateralized
(To read related ANALYSIS, double-click [ID:nN17127064])
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(Editing by Jeffrey Benkoe)