Guess Who Produced the Most Toxic CDOs?

Wait, don’t tell me, let me guess . . .

The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

I guess it isn’t much of a a surprise or a coincidence that the firm that underwrote the greatest amount of toxic CDOs also purchased the greatest amount of Credit Default Swaps on top of them.

What is a surprise is the lengths the NY Fed went to hide this little factoid:

“Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency — and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released . . .

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis . . . “

What was the specific non-disclosure? Recall that in November 2008, as AIG was preparing a regulatory filing, they had been planning to include all of their counter party payments. Bloomberg calls this doc “Schedule A,” and it was a full breakdown of the pass-thru payments:

Unfortunately, a lawyer for the Fed killed the disclosure, according to e-mails found via FOIA:

“The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman — for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”

To review: Tim Geithner’s NY Fed bailed out Goldman Sachs at 100 cents on the dollar, and then went through all manner of contortions to hide this fact from the public and members of Congress.

Read the Bloomberg piece — but not on a full stomach . . .

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Source:
Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs
Richard Teitelbaum
Bloomberg, Feb. 23 2010
http://www.bloomberg.com/apps/news?pid=20601109&sid=ax3yON_uNe7I&