Goldman's Response to the <i>New York Times</i>

On Sunday, thewrote another story about the relationship between Goldman Sachs and AIG. Their theories are contradictory and many of the supporting "facts" don't stand up to serious scrutiny.
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On Sunday, the New York Times wrote another story about certain aspects of the relationship between Goldman Sachs and AIG titled "Testy Conflict With Goldman Helped Push A.I.G. to Edge." This is the third theory the paper has put forward since September 2008. The theories are contradictory and many of the supporting "facts" don't stand up to serious scrutiny.

Here are some of the errors:

NYT assertion
: "Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities."
The facts: We would have been happy to consult with third parties. In fact, on numerous occasions we attempted -- unsuccessfully -- to agree on a process with AIG to obtain third-party values.

NYT assertion: "Goldman's demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash."
The facts: Relative to the size of AIG's overall business, Goldman Sachs was a small counterparty. We don't believe our marks were "aggressive," they reflected market prices at the time. We requested the collateral we were entitled to under the terms of our agreements. The idea that AIG collapsed because of our marks is not credible. In any event, the story later asserts that, by the spring of 2008, AIG's dispute with Goldman Sachs was just one of its many woes.

NYT assertion
: "In addition, according to two people with knowledge of the positions a portion of the $11 billion in taxpayer money that went to Societe Generale, a French bank that traded with A.I.G, was subsequently transferred to Goldman under a deal the two banks had struck."
The facts: The assertion is false and misleading. Goldman Sachs provided financing to many counterparties, but in that role we would not have known whether a counterparty had obtained credit default protection, let alone from whom or in what amount.

NYT assertion: "Goldman Sachs stood to gain from the housing market's implosion because in late 2006, the firm had begun to make huge trades that would pay off if the mortgage market soured."
The facts: This statement is misleading and mischaracterizes how we positioned ourselves at the start of 2007. Goldman Sachs, like most other financial firms, was long the mortgage market at the end of 2006. In order to bring our exposure closer to flat, we began hedging our mortgage holdings in the first quarter of 2007. Those hedges certainly limited our exposure to the declining housing market, but we also recorded substantial writedowns on our residential mortgage holdings. Moreover, in most of the trades with AIG described in the article, Goldman Sachs was hedged by an offsetting position and did not have a short directional bet on the mortgage market.

NYT assertion: "It's not just who was right and who was wrong," Mr. Brown said. "I also want to know their motivation. There could have been an incentive for Goldman to say, 'AIG, you owe me more money.'"
The facts: Our only motivation was to provide marks that represented fair market value and to enforce the rights we had in our contracts with AIG in order to protect Goldman Sachs and its shareholders.

: "A November 2008 analysis by BlackRock, a leading asset management firm, noted that Goldman's valuations of the securities that AIG insured were consistently lower than third-party prices."
The facts: We believe that the marks we supplied to AIG represented fair market value for the underlying securities. We understand that the marks supplied by other AIG counterparties ultimately moved closer to ours, proving that we were at the forefront of taking realistic marks on our positions. Subsequent events in the housing market proved our marks to be correct.

NYT assertion
: "Perhaps the most intriguing aspect of the relationship between Goldman and AIG was that without the insurer to provide credit insurance, the investment banks could not have generated some of its enormous profits betting against the mortgage market. And when the market went south, AIG became its biggest casualty -- and Goldman became one of the biggest beneficiaries."
The facts: As we've already said, we were far from the biggest beneficiaries of the mortgage market's decline. Through prudent hedging, we limited our losses, rather than generating "enormous profits." AIG was only one of many counterparties with whom we had hedging arrangements.

NYT assertion: "...the insurer's executives believed that Goldman Sachs pressed Societe Generale to also demand payments."
The facts: That's not correct. We did not encourage other counterparties to issue collateral calls.

NYT assertion: "Mr. Sherwood said he did not want to ask other firms to value the securities because it would be embarrassing if we brought the market into our disagreement, according to an e-mail message from Mr. Cassano that described the call."
The facts: It is not true that we were unwilling to agree to a dealer poll. On the contrary, AIG would not agree on a process to obtain third-party values. Michael Sherwood doesn't know why someone might have suggested he thought it would be embarrassing to have third-parties value the securities.

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