Goldman-Sachs Posts $1.8 Billion 1Q Profit, Looks to Sell Stock, Repay TARP • Hacker News Board

Re: Goldman-Sachs Posts $1.8 Billion 1Q Profit, Looks to Sell Stock, Repay TARP

#31

Post by op12 » Thu, Apr 16, 2009, 7:57 PM UTC

gills wrote: post #30

op12 wrote: post #29

Earlier quoted context omitted.

> Goldman Sachs was owed $10B. 7.5B was available in pledged securities. Goldman got $10B in cash because of govt flow-through via AIG. If someone has pledged the majority of what is owed to me in collateral, it is wrong for people to imply that the 10 billion flowing through the government was just some windfall flowthrough. They got what they were owed, and the taxpayers got their 7.5 billion in collateral back. If…

If what you say is true, and Goldman hedged their hedge by purchasing CDS on AIG and/or outright shorting them, it should be trivial for a prosecutor to show that they entered a contract with AIG knowing fully that it could never be satisfied (who knows, there may even be a side letter to be found somewhere to that effect...) -- making the contract void and requiring a clawback of any payment made through AIG by Trea…

How does purchasing CDS insurance on a counterparty imply that they knew full well it could never be satisfied? If I purchase hurricane insurance on my home do I know full well a hurricane is going to destroy my house? It was a precautionary measure for an amount that was the difference between what they were owed and how much collateral was pledged. It indicates nothing of the sort that they knew full well the world was going to blow up and AIG would default

And what I say is true, there are many many public disclosures on exactly what their positions were.

Re: Goldman-Sachs Posts $1.8 Billion 1Q Profit, Looks to Sell Stock, Repay TARP

#32

Post by anamax » Thu, Apr 16, 2009, 10:56 PM UTC

op12 wrote: post #29

anamax wrote: post #28

Earlier quoted context omitted.

> This was 7.5 billion worth of collateral in extremely safe treasury bonds. > this is the 10 billion number that "went from tax payers to goldman" that everyone keeps saying Goldman Sachs was owed $10B. 7.5B was available in pledged securities. Goldman got $10B in cash because of govt flow-through via AIG. > So to be prudent, they bought CDS protection that would pay 2.5 billion in the event of default. Shouldn't th…

> Goldman Sachs was owed $10B. 7.5B was available in pledged securities. Goldman got $10B in cash because of govt flow-through via AIG. If someone has pledged the majority of what is owed to me in collateral, it is wrong for people to imply that the 10 billion flowing through the government was just some windfall flowthrough. They got what they were owed, and the taxpayers got their 7.5 billion in collateral back. If…

> If someone has pledged the majority of what is owed to me in collateral, it is wrong for people to imply that the 10 billion flowing through the government was just some windfall flowthrough.

I didn't say that it was a windfall. I said that Goldman was made whole by the US govt via AIG. If other folks are losing money in similar circumstances, it's fair to ask why Goldman is being treated differently.

And, even if everyone is being made whole, the question remains - why should the US make them whole? Why shouldn't they lose money for taking bad counter-party risks? They were planning to keep the money that they made for assuming said risks, so why shouldn't they take the hit when things work out badly?

If I buy something that turns out to be worth less than I expected, I take the loss. Why not Goldman and other banks?

> They got what they were owed, and the taxpayers got their 7.5 billion in collateral back. If the taxpayers did not pay the 10 billion

I'll pay $7.5B for $10B.

> In either case, whether AIG was allowed to fail or not, they would have been made whole.

Maybe, maybe not, but in any event, not by the US govt.

Re: Goldman-Sachs Posts $1.8 Billion 1Q Profit, Looks to Sell Stock, Repay TARP

#33

Post by op12 » Fri, Apr 17, 2009, 11:47 AM UTC

anamax wrote: post #32

op12 wrote: post #29

Earlier quoted context omitted.

> Goldman Sachs was owed $10B. 7.5B was available in pledged securities. Goldman got $10B in cash because of govt flow-through via AIG. If someone has pledged the majority of what is owed to me in collateral, it is wrong for people to imply that the 10 billion flowing through the government was just some windfall flowthrough. They got what they were owed, and the taxpayers got their 7.5 billion in collateral back. If…

> If someone has pledged the majority of what is owed to me in collateral, it is wrong for people to imply that the 10 billion flowing through the government was just some windfall flowthrough. I didn't say that it was a windfall. I said that Goldman was made whole by the US govt via AIG. If other folks are losing money in similar circumstances, it's fair to ask why Goldman is being treated differently. And, even if…

> Why shouldn't they lose money for taking bad counter-party risks?

I don't really know how else to explain this. They shouldn't lose money for taking counter party risk...because they were willing to pay the price to insure themselves on the counter party risk. Why do you keep insisting that they need to lose money? They had 7.5 in collateral, and they insured themselves for the other 2.5 in the event they defaulted. This is the definition of protecting yourself from bad counter-party risks.

> They were planning to keep the money that they made for assuming said risks, so why shouldn't they take the hit when things work out badly?

...because they insured themselves. Imagine someone who bought a share of Google stock and then also bought a put option on it to protect themselves. Then the stock goes down. It's like asking why that person shouldn't take the hit because they were going to keep the money if Google had gone up. Goldman doesn't take the hit because 1) they were prudently collateralized and 2) they PAID for CDS protection on the rest that was owed to them that was not collateralized. CDS is not free, of course.

If they were willing to pay the insurance and demand collateral, why should they have to take a hit at all?

> I'll pay $7.5B for $10B.

So would I, but this is obviously a mischaracterization. It's like a homeowner who defaults on their mortgage and gives a house worth 250k to the bank who lent them 500k to buy it. They are not "paying 250 for 500".

> Maybe, maybe not, but in any event, not by the US govt.

This is not really a maybe, maybe not situation. Clearly with the collateral and insurance arranagements, Goldman would not have lost money as a counterparty to AIG. If you have an explanation otherwise I would be interested to hear it.