It's Official: Goldman Sachs, AIG Played Taxpayers for Fools

Linus Wilson submits:It is official. In their annual report via Business Week Goldman Sachs (GS) says their employees are innocent as lambs. (The implicitly government guaranteed company, Goldman Sachs, is full of lambs doing ‘God’s work’ with seven figure bonuses!) GS says that it did nothing wrong in its credit default swap bets with American International Group (AIG). There is a funny thing about the too big to fail (TBTF) problem. The dummy at the poker table isn’t even in the casino. AIG and Goldman Sachs (and most of the other major investment banks) were playing with the money of U.S. taxpayers. Sure, Joe Casano was a brutish idiot, according to Micheal Lewis (on page 86 and here). Casano’s team at AIG Financial Products was dumb enough to think that the normal distribution could be used to predict extreme events. Anyone who was not entirely asleep in the last twenty-five years knew that the extreme events, black swans, were much more frequent in the financial markets than the normal (Gaussian) distribution predicted. Cases in point were the 1987 stock market crash and the blow up of the normal distribution fanatics’ at the failed hedge fund, Long-Term Capital Management (LTCM). Everybody but the super geniuses at AIG who deserved $168 million guaranteed bonuses, which Tim Geithner failed to stop at the New York Fed, knew that the normal distribution could not be used to predict catastrophic events in financial markets. (Yet, I still wonder why the blow up of teaser loans given to people with no job, no income, and no assets, so-called NINJA loans, constituted an “extreme event.”)Complete Story »