In a punchy column this week, the Times‘ Andrew Ross Sorkin provides what his headline calls Some Backup for Goldman on the longstanding A.I.G. controversy.
Since the early days of A.I.G.’s $182 billion rescue, the government’s money was seen as a “backdoor bailout” of Goldman Sachs, the insurance giant’s biggest trading partner: The Times itself reported the big story that Goldman had as much as “$20 billion of risk tied to A.I.G.,” although the investment bank was already saying that its exposure was “immaterial.” Last Friday the Times did a big new article on how badly an A.I.G. collapse would have hurt Goldman; the “backdoor bailout” phrase has even been used even on DealBook, the Times business blog that Sorkin edits.
But that “popular narrative,” Sorkin says this week, isn’t right. For one thing, he explains, Goldman had hedged itself by buying lots of insurance on A.I.G. from dozens of other banks. Last Friday’s article, though, said that chunks of the protection came from banks like Citibank and Lehman, who would probably have been too unstable to have made good.
Mr. Sorkin has made a habit of writing nimble-footed Goldman defenses this year. In April, in a column called A Crowd With Pity for Goldman, he quoted fellow guests at Michael Milken’s big annual conference who thought the S.E.C. suit was “childish.” Last month, in a column called One Crowd Still Loyal to Goldman, he said that despite all the bad headlines, the truth was that “Goldman’s big customers are not bolting.” In between, he wrote a column about support from Warren Buffett, who, as Mr. Sorkin pointed out toward the end, has an enormous stake in the company. And earlier in the year, he explained why the A.I.G. bailout might not be so bad: He quoted two sources close to the firm’s board who once thought the A.I.G. bailout would cost the country $100 billion, but who now think the government might be able to get all its money back.
This week’s column’s other great Goldman defense comes from a newly released email that was sent a few hours before the Federal Reserve put $85 billion into the insurance giant. Tim Geithner got a note from a lieutenant, Brian Peters, who had just talked to Goldman’s chief risk officer, Craig Broderick: Mr. Peters said in the email to his boss that Goldman was hedged! In other words, the government’s A.I.G. $85 billion wasn’t a conspiracy to save Goldman.
Then again, Goldman Sachs, like the other giants, would have almost certainly been ruined by the market-wide catastrophe that A.I.G.’s failure would have caused. Think of the blood and chaos! In that sense, Mr. Sorkin decides, A.I.G.’s billions were “a front door bailout” for the whole system, not a backdoor bailout for its biggest trading partner.