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By Ronald Fink
Goldman Sachs CEO Lloyd Blankfein may honestly believe the banking industry serves the public, and his recent use of religious language to defend its actions
is understandable, given the Archbishop of Canterbury's complaint that bankers have failed to repent for their mistakes.
But it's hard to take Blankfein's defense seriously when you consider the litany of Goldman actions that structured finance expert Janet Tavakoli has identified as contributing to the greatest financial crisis since the Crash of 1929.
"Goldman wasn't the only contributor to the systemic risk that nearly toppled the global financial markets," Tavakoli wrote in a note posted on her site Tuesday, "but it was the key contributor to the systemic risk posed by AIG's near bankruptcy."
According to the analyst, not only did Goldman underwrite some collateralized debt obligations and then buy protection against their risk from AIG. But it also underwrote the tranches of CDOs owned by some of AIG's other counterparties, many of whom also hedged the risk through credit-default swaps sold by AIG.
Tavakoli also noted that Goldman underwrote other deals that helped undermine the market for mortgage-backed securities.
Then there were AIG's trades with Goldman, the insurer's largest counterparty. Tavakoli noted that these represented a third of some $62 billion in transactions that AIG had entered into that had to be marked to market prices. By insisting on those prices, Goldman ultimate required AIG to put up $7.5 billion in collateral that AIG did not have.
Goldman's involvement with AIG went even deeper in the form of CDOs underwritten by Merrill Lynch and insured by AIG.
The analyst also pointed out that, as AIG's financial position deteriorated, Goldman bought credit defaults swaps against AIG's failure.
Tavakoli conceded that Goldman had an obligation to act in its own interest, but insisted that this contributed to AIG's failure and its need for a $182 billion taxpayer bailout. "Goldman was right to question the prices, make calls for collateral, and protect itself," she wrote, noting that "Goldman's activity was not the same as that of an arsonist buying fire insurance." But she insisted "its trading activities with AIG and others were accelerants of AIG's problems."
She also insisted that the bank failed to own up to its role in the crisis. "A Goldman spokesman told me its involvement in AIG's trades was only as an intermediary," Tavakoli noted, "but that isn't even close to the full story."
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