Monday, January 25, 2010


WSJ--Another juicy detail has emerged from the saga of Goldman Squid and AIG. As everybody knows, AIG got a huge government bailout in September 2008 to help make payments on derivatives contracts with banks, including Goldman. Yet in the previous month, Goldman approached AIG about "tearing up" its contracts, according to a November 2008 analysis by Blackrock, then an adviser to the New York Fed.

Why might AIG have accepted termination? Perhaps if it thought the underlying CDO assets were worth holding instead of a derivative liability to Goldman. Or if Goldman was willing to accept less than face value to close the contracts out.

So was Goldman prepared to offer AIG a haircut in the month before its rescue? A legitimate question, given that Goldman refused to accept  a haircut when the New York Fed raised the idea after it bailed out AIG.

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