I suppose I should take anything said by Goldman in general, and its CFO David Viniar, with a fistful of salt. This is the man who during the October-November meltdown, attributed the poor performance to the fact that they were seeing “25 sigma events, several days in a row.”
That show such manifest ignorance as to be laughable. As Brad DeLong pointed out the day before the Viniar remark, apropos quant defenses of defective models, that saying they had seen a 16 sigma event was ridiculous, since the universe wasn’t old enough for one to occur. A 25 sigma event is VASTLY more remote. To say it happened not once, but repeatedly, it tantamount to an admission that the models were rubbish. But Viniar said it with a straight face, apparently unaware of what he was really conveying.
We see the same pattern at work in today’s remarks. Viniar professes to by “mystified” at the interest in the Goldman’s dealing with AIG and pretends AIG is a mere “counterparty”. Let’s see, the CEO of AIG was recently a board member of Goldman and still owns $3 million of Goldman stock. Goldman CEO Lloyd Blankfein was the only Wall Street representative asked to confer with Treasury Secretary Hank Paulson when the AIG crisis broke. AIG paid out al its counterparties in full on their exposures at each downgrade, a move that has since been questioned, and Goldman was far and away the biggest recipient of these payments. Viniar’s defense is that the payments netted to zero, which is technically correct but more that an tad misleading (why should Goldman be made whole on a bad business decision? Since when is the taxpayer in the business of propping up Goldman, particularly since the firm paid large bonuses in 2008? Aand unlike AIG, where the bonuses are mere chicken feed, we are talking bonuses in easily in excess of $10 billion.
David Viniar, Goldman Sachs Group Inc.’s chief financial officer, said he’s “mystified” by the interest investors and government officials have shown in the bank’s trading relationship with American International Group Inc.
“They’re one of thousands and thousands and thousands of counterparties and the results of any trading with AIG are completely immaterial to what we do,” Viniar said today in an interview. “I am mystified by this fascination with AIG.”…
Viniar told analysts today that any profits related to AIG in the January-to-March quarter “rounded to zero,” as most of the transactions were unwound before the end of the year. In an interview, he also said profits in December weren’t significant.
“I would never tell you that we didn’t book any profit, I don’t even know,” he said. “I couldn’t tell you with any counterparty that we booked zero, but I could tell you it rounded to zero.”
After AIG was rescued by the U.S. from collapse last year, banks that bought credit-default swaps got $22.4 billion in collateral and $27.1 billion in payments to retire contracts, the insurer said last month.
Neil Barofsky, special inspector general for the government’s Troubled Asset Relief Program, began an audit two weeks ago into whether there were attempts by AIG or the government to reduce the payments, according to an April 3 letter to Representative Elijah Cummings. The Maryland Democrat requested the probe last month along with 26 other members of Congress.
Lawmakers, frustrated with the cost of an AIG bailout that has expanded three times, have asked why about $50 billion was paid after the initial September rescue to banks that bought credit-default swaps from the firm. The audit will reveal who made “critical decisions” regarding the payments and provide an explanation for the actions, Barofsky said.
Viniar held a conference call on March 20 to answer questions about the firm’s trading relationship with AIG and to “clarify certain misperceptions.”
When AIG was rescued, Goldman Sachs had $10 billion of exposure to the insurance company that was offset with $7.5 billion of collateral as well as credit-default swaps that would have paid off in the event of an AIG bankruptcy, Viniar said on the March 20 call.
He also said on the call that Goldman Sachs recorded a gain “over time” on the value of the hedges it bought to guard against a default on AIG, even though the government enabled the insurer to honor its obligations. In today’s interview, he said those gains were booked “from 2006 to now” and that any gains booked in the first quarter “would have been very, very small.”