The Times, Goldman and the SocGen Problem

The bank has minor, but valid point in tiff with the paper

The NYT’s Sunday story on the AIG-Goldman collateral fight didn’t break any major news, but it certainly added some useful details to the record and, for the most part, has held up well against the unusual public response by Goldman spokesman Lucas van Praag on Huffington Post.

But, as they say in the NFL, upon further review, the story in fact does contain a problem paragraph, and the dispute surrounding it offers lessons for the press.

Of course, as we often say around here at CJR, what doesn’t?

(And I’ll get it out of the way early that Goldman is an Audit funder, having giving us about 10 percent of our budget last year; read all about it here and here. I suppose there are press lessons there, too.)

As close followers of the financial conversation know, the latest back-and-forth between Goldman and the Times is part of a continuing institutional clash that began in September 2008, when Gretchen Morgenson first broke the news that Goldman was involved in the AIG bailout at all. In this Nation profile of Morgenson last year, I sided with the Times in an earlier dispute.

The latest Times piece, by Morgenson and Louise Story, explored the precrash struggle between AIG and Goldman over the value of CDOs that AIG had agreed to insure for the bank.

To be clear, Goldman’s response notwithstanding, the main premise of the Times’s story, announced in the headline, is unassailable and, really, not even controversial at this point:

Testy Conflict With Goldman Helped Push A.I.G. to Edge
And while he offers a useful alternative view, almost all of what van Praag calls “errors” don’t really qualify. I’ll take them point-by-point elsewhere and add a link when it’s ready. (UPDATE: That’s here.)

Where van Praag does have a point, however, comes in a paragraph about Goldman receiving even more bailout money than had been previously reported via a deal with Societe Generale. This is from van Praag’s piece.

NYT assertion: “In addition, according to two people with knowledge of the positions a portion of the $11 billion in taxpayer money that went to Societe Generale, a French bank that traded with A.I.G, was subsequently transferred to Goldman under a deal the two banks had struck.”

The facts: The assertion is false and misleading. Goldman Sachs provided financing to many counterparties, but in that role we would not have known whether a counterparty had obtained credit default protection, let alone from whom or in what amount.

The two sides here are talking past each other a bit. But on its face, Goldman already has a beef because even if the Times’s assertion is true, the passage gives a sinister cast to what, as written, could easily have been an innocent transaction. With the number of deals between banks, such a transfer doesn’t seem unusual, or at least the Times doesn’t offer any reason to think it was.

In a note to me, Times Sunday Business Editor Tim O’Brien expands on the narrow language of the story and says that the Times learned that Goldman had in fact bought AIG-issued insurance from SocGen, triggering the “transfer” referred to above.

This is O’Brien:

As you noted in your email to me, I think almost all of Lucas’ responses to our piece in his note to the HuffPost were already reflected in the story itself. I don’t think any of them contradict or undermine the exploration of Goldman’s relationship with AIG, as laid out in Gretchen Morgenson and Louise Story’s deeply reported piece.

Regarding Goldman’s trading relationship with SocGen: Louise Story asked Lucas to go on the record twice to comment on that issue and Lucas declined. Although he’s decided to go on the record on the matter after we published our piece, he’s still not actually addressing what we wrote.

To wit, we didn’t write that Goldman provided financing to SocGen, as Lucas states. Rather, it is our understanding that Goldman purchased AIG insurance on mortgage positions from SocGen, insurance SocGen itself had purchased from AIG at an earlier point in time. When the US government bailed out AIG and reimbursed SocGen, Goldman and other firms at 100 cents on the dollar for their AIG contracts, it is our understanding that a portion of the amount paid to SocGen was then channeled to Goldman.

In a note to me, van Praag says it’s just not true that Goldman bought such insurance from SocGen.

I think Tim (and by extension Gretchen and Louise) is misinformed. He writes that “it is our understanding that Goldman purchased AIG insurance on mortgage positions from SocGen, insurance SocGen itself had purchased from AIG at an earlier point in time.” We didn’t, and the statement implies a lack of understanding of how credit default swaps work.

He adds:

The allegations they’ve made are damaging to us, because they further the negative sentiment generated around the subject of AIG and us…I don’t know who the two people claiming to have knowledge of the positions are, but they are wrong and appear to have misled the Times

At least things are clearer now. This is a fact dispute, not a murky fairness problem. The Times says its reporting found that Goldman bought such insurance from SocGen. Goldman says it’s not true.

O’Brien tells me the Times’s account will be borne out in time: “I’m happy to see how the reporting plays out on this one.”

At this point, though, we’re left with a factual assertion by two anonymous sources pitted against a flat denial, on the record. Readers can make up their own minds. Others might call it a jump ball, but for me the benefit of the doubt should go to the side on the record: Goldman.

A couple of thoughts:

First, though both sides say the facts eventually will vindicate them, the truth is, as a practical matter, we’ll never know. This dispute will be long forgotten by the time we find out for sure.

Second, we’re talking about 45 words out of a 2,600 word-story. This is lagniappe. As I say, the rest of the piece held up, as has almost all of the Times’s reporting on Goldman. The SocGen issue is subsidiary, nothing like the main premise of the story. Still, Goldman has the right to feel that it was hurt by reporting that it gained extra bailout money, and from a French bank, no less.

On the other hand, Goldman’s feelings really aren’t the issue, are they? For more on that, read this.

Third, it’s important to keep in mind that this heated and long-running collision between two iconic institutions—newspaper and bank—over where the bank fit into the AIG bailout has yielded huge dividends for the public’s understanding of the financial crisis. This should continue.

Fourth, O’Brien says that Goldman was offered a chance to knock down that part of the story for the record and didn’t. Without getting into who-said-what, those situations should be avoided.

Fifth, the paragraph in question was poorly written. If the Times meant that Goldman had bought AIG-issued insurance from SocGen, it should have just said so.

Finally, it’s well worth noting that despite the intensity and the obvious stakes, the institutional clash has remained remarkably civil. It should stay that way.

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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.