The Gold Standard  

Some days ago, I had posted this comment on the AIG bailout. I had indicated that the real villains were the credit-rating agencies rather than one firm or the other. We have an update from Gretchen Morgenson of NYT. That does indeed shed new light on the subject. Few things stand out from this article:

(1) Goldman Sachs refused third-party valuation of the bonds it had insured with AIG while consistently reporting low values for them, to seek insurance reimbursement. I doubt if any insurance company would accept, at face value, the loss report of the insured party.

(2) I had argued that reimbursement to Goldman Sachs of the full face value of the insurance contract was reasonable since Société Générale too was reimbused to the full. It turns out that GS had an arrangement with SG and that some of the money that SG received flowed right back to GS.

The fact that Goldman did not own these bonds (on which it had bought insurance) and at the same time had bet on the mortgage market turning down, means that Goldman had everything to gain from the mortgage market crash.