Decisions: Life and Death on Wall Street (Kindle Single) by Janet M. Tavakoli

Author:Janet M. Tavakoli [Tavakoli, Janet M.]
Language: eng
Format: azw3
Publisher: Lyons McNamara LLC
Published: 2015-04-04T00:00:00+00:00

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To keep up the myth that Wall Street executives were the best and the brightest and not just sly operators with their hands in taxpayers’ pockets, both the New York Fed and the SEC kept damaging information out of the public eye. Wall Street firms tried to fool the public about the extent of their distress.

On a September 16, 2008 conference call, Goldman Sachs CFO David Viniar said, “Whatever the outcome at AIG, I would expect the direct impact of our credit exposure [to both AIG and Lehman Brothers] to be immaterial to our results.” In October 2009, I wrote that this was, in my opinion, a lie of omission.49 Shortly thereafter, a Goldman Sachs spokesman called me with denials and obfuscations. Among other things, he claimed Goldman Sachs acted only as an “intermediary.” Inadvertently or otherwise, he lied.

I wondered how often Goldman Sachs bullied and lied to the mainstream press. Most reporters brought a pen to a gunfight. Unfortunately for the Goldman Sachs spokesman, I had a list of the collateralized debt obligations against which AIG wrote protection in the form of credit derivatives. Goldman Sachs had been underwriter or co-underwriter of the largest chunk of them. That was a huge leap from just being an intermediary. As the underwriter, Goldman Sachs was obliged to perform due diligence and to disclose risks.

After the Goldman Sachs spokesman’s call, I decided to make even more information public. It was the opposite of what he wanted. I broke the news that Goldman Sachs had a key—previously undisclosed—role in AIG’s distress.50 51 52

Before he was Secretary of the Treasury, Hank Paulson was CEO of Goldman Sachs from 1999 to 2006, and it was under his leadership that Goldman Sachs created CDOs and entered into trades with AIG.53 54 55 As the CDOs imploded, Goldman Sachs’s credit derivatives skyrocketed in value, and Goldman Sachs called AIG for collateral. By September 2008, Goldman Sachs had demanded $7.5 billion, and it wanted more, but AIG couldn’t pay; the cash demands were the key reason AIG was going under.

Goldman Sachs claimed it was hedged through credit derivatives it bought from other banks in case AIG failed. But the fallacy with that argument was that if taxpayers hadn’t bailed everyone out, Goldman’s trading partners would not have been able to pay for the protection that Goldman Sachs bought on AIG. Moreover, the “protection” seemed several billion dollars short of what was needed even if the banks had been good for it, and they were not.

Goldman Sachs made a huge mistake when Hank Paulson was CEO, and as Treasury secretary, Paulson finagled a windfall for his old firm, with no accountability whatsoever for himself or for Goldman Sachs.

The Financial Crisis Inquiry Commission’s first report didn’t mention Goldman Sachs’s key role. I publicly said I found the FCIC’s omission suspicious.56 The FCIC’s next report came out a week after I broke the news. The new report included part of Goldman Sachs’s role.

In the wake of these disclosures, Senator Carl Levin led another probe and revealed that Goldman Sachs magnified losses for investors.

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