The New York Times has a fascinating article up on its website, which apparently also ran in the edition for September 28, 2008. The article is headlined "Behind Insurer’s Crisis, Blind Eye to a Web of Risk" and it is about how the insurance giant AGI got itself in financial trouble.
The article points out that not only did it get itself into financial trouble, it also got those with whom it did business into financial trouble. According to the article, one company it did business with was Goldman-Sachs, the private investment bank. Treasuary Secretary Henry Paulson used to run Goldman-Sachs. The following is a quote from the article:
Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.
Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.
Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.
So AIG gets access to United States taxpayer money and Paulson's old firm doesn't have to worry about possibly losing 20 billion dollars. Frankly, is the Times article is true, the bailout of AGI begins to smell like a dead fish.