Why AIG’s Goldman Threat Is Good for You


It may not look like good news, but if you’re an American taxpayer, pay attention. AIG, the massive global insurer and beneficiary of billions of dollars in taxpayer cash, is eyeing a lawsuit against Goldman Sachs, a move clearly piggybacking on the Securities and Exchange Commission’s announcement that it was suing Goldman for allegedly misleading its clients. The SEC’s suit, filed on Friday, says Goldman created and sold a complex financial product called a collateralized debt obligation (CDO), whose value depended on the health of the subprime mortgage market, and that Goldman let a hedge fund trader wanting to bet against the housing bubble, John Paulson, pick basement-quality bonds to make up that CDO. More importantly, Goldman, the SEC alleges, failed to tell the buyers of that CDO that Paulson picked those bonds and that he was betting against those bonds and the housing market.

AIG’s potential suit, the Financial Times reports, would center on “losses incurred on USD 6 billion of insurance deals on mortgage-backed securities similar to one that led to fraud charges against the US bank.” In other words, AIG sold insurance against the failure of the Goldman bonds in question, from a family of bonds called Abacus. When those bonds inevitably failed, AIG had to pay out, recording losses of $2 billion. But now knowing that crucial information about the strength of those bonds was allegedly left out, AIG could have a case to make. 

The insurer, you’ll remember, is a company largely buoyed by the American taxpayer—something to the tune of $134 billion, including the Federal Reserve and Treasury’s support. Someday, a portion of those funds could make their way back into the government’s coffers if and when AIG returns to full health. This suit against Goldman, however, could help AIG recoup some of its losses, which ultimately is a good thing for the American taxpayer that so generously kept a too-big-to-fail AIG from crumbling to the ground.

Fact:

Mother Jones was founded as a nonprofit in 1976 because we knew corporations and the wealthy wouldn’t fund the type of hard-hitting journalism we set out to do.

Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation so we can keep on doing the type of journalism that 2018 demands.

Donate Now
  • Andy Kroll

    Andy Kroll is an investigative reporter at Mother Jones. For more of his stories, click here. Follow him on Twitter here. Send tips, scoops, and documents to akroll (at) motherjones (dot) com.