The Goldman, Bush, Paulson, Geithner fraud

Summarized by the Washington Independent.

The key points copied:

• The people at Goldman Sachs invested in mortgage-backed securities they expected to decline in value in order to make money off the insurance claims.
• Due to a long-standing relationship, they went to AIG for a kind of insurance — credit default swaps — which were not regulated.
• They then used other companies, including Société Générale, to purchase more of the unregulated insurance that AIG might not have otherwise underwritten in order to manage its own risk.
• When Goldman’s investments declined, they submitted insurance claims for the losses, but insisted on determining the amount of their damages on their own, without any input from AIG, any auditor or the market.
• After Goldman got as much money out of AIG as they thought they could, their stock analysts issued a report about how AIG was bleeding cash and their creditors wouldn’t negotiate, without mentioning that AIG was bleeding cash because of them and that Goldman was the creditor that wouldn’t negotiate. AIG’s stock tanked.
• The government stepped in, took an 80 percent share in AIG and then paid Goldman and the other creditors all the money they’d asked AIG for at the start of the negotiations in 2007, without using their power to force AIG’s creditors to negotiate.

HT Yglesias

Let us go through the timeline, 2006. Bush reopens the long bond sales to leverage more deficit, Feb. Hank Paulson nominated for Treasury Chief, May. Goldman Sachs starting shorting and dumping Mortgage Backed Securities. The economy overheats and the yield curve goes inverted, the recession is on nine months later.

In mid 2006, Bush knew the deficit machine had run its course, Paulson takes the job supported by old friends in the Bush administration. Now GS has an insider, better to time the exit strategy. GS still trades on insider news from the Obama administration.