A Letter from Goldman Sachs

The bank takes issue with The Audit; we reply

Recently, I’ve written posts denouncing the secrecy surrounding the government bailout of American International Group—secrecy that. among other things, has led news organizations to publish wildly different accounts of the degree to which, if at all, the bailout benefited Goldman Sachs.

One post, “Goldman’s Backdoor Bailout,” praised a September 29 Bloomberg story, saying it “blows away any inference that Goldman had no stake in the bailout,” an inference made, interestingly, in a second Bloomberg story by different authors that actually ran after the first, on October 21. I also cited reporting that described Goldman’s extraordinary efforts to make good on its AIG investment as evidence of its keen interest in the insurer’s fate.

Goldman spokesman, Lucas van Praag, took issue with my take and asked to respond. We’re fine with that. Now, as it happens, Goldman is one of The Audit’s financial backers. (What can I say? Journalism’s experiment with the philanthropic model still has, um, a few bugs.) But that’s not why we’re running this exchange. We’ve done it before; we’ll do it again. You don’t need to give us money to get a hearing. On the other hand, we won’t give you any special treatment. Sigh. I’ll stop writing now.


Irrespective of your views on disclosure, it is unreasonable to suggest that we engineered a ‘backdoor bailout’. We didn’t.

We entered into transactions with a sophisticated financial institution. The terms of the transactions were clear and included provisions for collateral. It seems perverse to seemingly chastise us for being effective managers of risk, and doubly so to imply that we were somehow to blame for determining that underlying values had fallen and more collateral was required.

The fact that AIG disputed some of our collateral calls is a matter of public record. We’ve made it clear that we covered the difference between our determination of value and the collateral AIG put up by hedging. In other words, even while the disputes were being resolved, we acted to protect our shareholders.

As a result our exposure was immaterial, but we paid handsomely for that security.

The reason why Lloyd Blankfein was concerned was not from a narrow Goldman Sachs perspective, but from a systemic one. If AIG had gone bankrupt, the immediate effect on us would have been negligible but, given the size of AIG and the extent of its financial operations, the impact on the system itself had the potential to be catastrophic. Given the actions of the Fed and the Treasury, that view was shared by others.

Hank Paulson has spoken eloquently on the use of public funds to bail out financial institutions, but please bear in mind that we did not ask for help in the case of our dealings with AIG and neither did we ask for the Federal government to become a shareholder in Goldman Sachs.

Best / Lucas

Here’s my reply:

Hi Lucas.

It’s fine to go after collateral. I brought up Goldman’s efforts to recover it only to refute the notion peddled by the October 21 Bloomberg story that Goldman had no particular interest in AIG’s fate. And while I understand that Goldman says its exposure to AIG at the time of the bailout was not material, I’d note that the September 29 Bloomberg story said, “as much as $37 billion” of AIG bailout money “has gone” to Goldman and other firms. That’s where the record stands for now. Thanks for writing.


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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.