Goldman Will Shut It Down

As exasperated as I am with Congress, they do seem to know how to investigate, if they don't always get the follow-through right. And they seem to be looking in the right places. For instance, Elijah Cummings wants to know about the counter-party payments from AIG:

He's currently circulating (and I have obtained) a letter to colleagues, seeking their support for a TARP inspector general investigation into every aspect of the payments AIG made, with government money, to counterparties whose risky investments it had insured.

"Goldman Sachs claimed in September that they had no material exposure to AIG; however, after AIG released the counterparty information on March 15, we found out that Goldman Sachs received almost $13 billion in counterparty payments.

The Special Inspector General for the Troubled Assets Relief Program was created to ensure that transparency and accountability stay firmly rooted in the government's efforts to revive and sustain the American economy. This letter proposes that the Special Inspector General examine the nature of the counterparty payments - including the recipients, the process by which they were made whole, and the justification, if any, for that level of payment."

In addition, investigators for the House Oversight Committee are delving into Joseph Cassano, the former head of the AIG Financial Products unit and essentially Patient Zero of the global financial crisis.

Investigators for the House Oversight committee intend to interview Cassano about his role in the firm's collapse, and have already contacted his lawyer, a committee staffer told TPMmuckraker.

As CEO of AIG Financial Products, Cassano, based in the unit's London office, was the prime mover behind the credit default swaps, whose implosion brought the firm to its knees. He stepped down in March 2008, signing a $1 million-a-month "consulting" contract with the firm. (The contract was canceled last September.)

Federal investigators, as well as Britain's Serious Fraud Office, are also probing AIGFP. The Feds are reportedly focused in particular on whether Cassano and then-AIG CEO Martin Sullivan made false or misleading pubic statements about the company's potential exposure to losses on its credit default swaps. A December 2007 shareholder presentation the two men made is said to be of special interest.

The focus appears to be those counter-party payments from AIG, and how they made big international banks whole on their CDS bets. What worries me is that all roads lead to Goldman Sachs, which clearly has its tentacles around the Administration. Goldman vowed yesterday to return all the TARP money it received while neglecting to mention that they received even more government relief from AIG and other sources. And Goldman is a linchpin to the Geithner plan for toxic assets:

Tim Geithner suggested that Goldman Sachs could be one of five institutions helping to manage the public-private partnership program to buy up a bunch of toxic legacy assets from ailing banks.

Goldman has played a central role in this drama. As an institution, it's been extremely close to the Treasury department. And, as Josh noted, it's also about to pay off all of its TARP money (with the help, perhaps, of the other government money it received as an AIG counterparty) which will free it up to return to a status quo of paying enormous bonuses.

It's also, of course, one of the institutions that helped bring the financial system to its knees--it holds many of the toxic assets in question and may be well placed to bid them up and inflate their prices at auction. (How you manage the fund to rescue financial institutions with toxic assets while you yourself hold those same assets has yet to be sussed out by committee members.)

My point is that Goldman may be the eventual white whale for Congressional investigators, but the Treasury Department as currently structured will work overtime to shield them from any harm.

Sigh.