By Porter Stansberry in the S&A Digest:
Former Treasury Secretary Henry Paulson is a lucky man... for now. The bonus flap at AIG has completely misdirected the public and the media from the real crime. Last October, I told readers of my investment advisory the real reason AIG had been bailed out:
AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs. We'd wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion...
Surprise, surprise... On Monday, AIG finally revealed where the government's bailout money went. After saying for months and months it didn't have any material exposure to AIG (essentially claiming my reporting was completely wrong),
Goldman, in fact, has received more money than any other counterparty, almost $13 billion. And guess what Goldman's total exposure to AIG actually was? You'll never guess. "AIG had about $20 billion in total swaps with Goldman..." says the Wall Street Journal.
If you knew how much exposure Goldman had to AIG, you might doubt the motives and the objectivity of our Treasury Secretary at the time, Hank Paulson.
Paulson was demanding an unprecedented amount of money from Congress with no strings or oversight attached. Without this money, he said, there would be an unmitigated catastrophe. Maybe. But Goldman would surely have faced a huge problem. Assuming Goldman lost all $20 billion in exposure to AIG, the collapse would have wiped out nearly half of Goldman's equity, probably sending the company into a Lehman/Bear Stearns death spiral.
Don't forget... Paulson spent his entire career at Goldman, where he was the CEO in 2005 and 2006. That's when Goldman entered into most of these swaps with AIG. He knew exactly what would happen to his old firm if AIG failed. If you want to be outraged about AIG (and you should be outraged at the entire bailout), don't worry about the bonus issue. That's small-time stuff.
Be outraged your tax dollars and your government was turned into Goldman's checkbook, by no less than the company's former CEO.
Crux note: Join Porter Stansberry's Investment Advisory to follow this story, how the government has declared war on you, and how to protect your family's finances.
