The Wall Street Journal fleshes out the Goldman Sachs backdoor bailout part of the Special Inspector General of the TARP’s AIG report issued yesterday.

Basically, the SIGTARP says Goldman was bailed out by the AIG bailout, something the firm (an Audit funder) has denied until now, as you can see from this GS statement (emphasis mine):

“Goldman Sachs has consistently said its exposure with AIG was collateralized and hedged and therefore we had no direct credit exposure. Given the hedges, collateral and government backing as a result of the bailout, the additional risks of declining market values in the event of an AIG default are a moot point.”

But it’s not a moot point, it’s the whole point. Goldman had credit exposure in the event the government let AIG fail, which it didn’t, in large part to keep companies like Goldman Sachs upright. See?

In other words:

Goldman’s trading position with AIG centered on $22.1 billion worth of such insurance the firm had purchased from AIG. In a separate series of trades, Goldman itself had sold protection against losses on the same assets to other trading firms.

The problem for Goldman: If AIG collapsed and markets continued to swoon, Goldman would have had to make payments to the other trading firms and been unable to collect on protection it had bought from AIG.

The SIGTARP points out that $4.3 billion of Goldman’s collateral was comprised of collateralized debt obligations, not exactly the most liquid collateral in the event of a run on the bank. And it says that another $5.5 billion of collateral would have faced “declining market value” in the event of an AIG failure.

It’s unclear from the story what made up that $5.5 billion in collateral, but it’s clear it wasn’t cash (the dollar may have tanked since, but at the time it was up).

The WSJ’s language also isn’t the clearest here:

For example, Goldman believed that it controlled $4.3 billion in assets—pools of fixed-income securities that require complex computer modeling to design and understand—that would have been used to counter an AIG default, the audit said.

It “believed” it controlled them? Does that mean it thought it controlled the assets but may not have or that it thought their value was $4.3 billion? I think it’s the latter based on a quote a couple of paragraphs down, but I’m not totally sure. It’s just a nit, but “Goldman valued” would have worked better if that’s the case.

But good for the Journal for focusing on this issue.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.