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Is Lloyd Blankfein a Liar?

Posted by Larry Doyle on November 18, 2009 3:45 PM |

Yesterday I wrote “Just How Sorry Is Goldman Sachs?” in response to a blanket, unspecified, and unsolicited apology put forth by Goldman Sachs CEO Lloyd Blankfein. In my commentary, I asserted:

Wait a second. Blankfein admits that Goldman participated in activities that led to the crisis? Get Lloyd back in here and ask him for specifics.

In an attempt to probe as to Goldman’s culpability, I inquired:

What do you think Blankfein was referring to when he stated that Goldman “participated in things that were clearly wrong”? I’ll get the ball rolling with a few possibilities:

1. Manipulated the equity markets via computer programs connected with high frequency trading.

2. Ran over Tim Geithner in the settlement of open positions with AIG.

3. Facilitated insider trading on behalf of hedge funds.

4. Intentionally misled lesser prioritized clients via trading huddles.

5. Abused privileged information provided by former Goldman execs now in government positions.

6. All of the above.

7. Other . . . please share your opinions.

Today we learn the answer is most likely choice # 2. It appears that Lloyd Blankfein would like forgiveness for the aggressive posture it took with Uncle Sam in the process of settling its exposure with AIG. Recall that Blankfein has repeatedly asserted that whether AIG went down or not was not meaningful to Goldman Sachs because Goldman had secured collateral from AIG to cover its exposure.

Does Lloyd regret making those strong and bold assertions? Is he apologizing for these statements? Why would he apologize? Did he intentionally misrepresent Goldman’s position? Did he lie? Today’s Wall Street Journal provides compelling evidence that he did just that. The WSJ writes, Report Rebuts Goldman Claim on AIG:

For more than a year, Goldman Sachs Group Inc. has maintained that it wouldn’t have suffered material losses had the government allowed one of its major trading partners, American International Group Inc., to collapse.

A government report throws cold water on that claim.

Goldman was among the largest beneficiaries of a decision by the Federal Reserve Bank of New York to bail out insurer AIG in September 2008 at the height of the financial crisis. The Fed agreed to pay Goldman and 15 other banks, in full, for $62 billion of insurance contracts they had with AIG to protect against price drops of mortgage securities they held.

The report, issued this week by the special inspector general for the Troubled Asset Relief Program, comes amid controversy over whether the government unfairly helped out big banks in its bailout of AIG. The government auditor’s report broadly found that the New York Fed left itself little room in negotiating with the banks for a better deal for taxpayers.

Goldman’s trading position with AIG centered on $22.1 billion of such insurance the firm had purchased from AIG. In a separate series of trades, Goldman itself had sold protection against losses on the same securities to other trading firms.

The problem for Goldman: If AIG collapsed and markets continued to swoon, Goldman would have had to make payments to the other trading firms and been unable to collect on protection it had bought from AIG.

While spokesmen for Goldman may try to spin Blankfein’s previous statements of Goldman being hedged against an AIG default, it does not take a brain surgeon to tie Blankfein’s apology yesterday to this story today. Professional courtesy in the financial industry compels journalists to share articles, especially negative coverage, with selected parties prior to its release.

Do not think for a second that Blankfein was not aware of this article in today’s WSJ. While some within the industry may look at Blankfein’s statements about Goldman being protected from an AIG default as some semblance of harmless obfuscation, from where I come, we call it lying.

Goldman took the American taxpayer to the hoop in the process. When does Blankfein want to make proper restitution? Keep your apology. Give the taxpayer their money back. Get Geithner in here as well, as he facilitated this transfer and allowed the lie to perpetuate.

If Blankfein lied about this situation, the question begs as to what other lies or half-truths he has spoken.

What do you think?


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