A man buys a truckload of sardines from one man and sells them to another for a nice profit. The new buyer sells them to yet another man, who in turn sells them to another buyer. The truck sits in front of the newest buyer’s house for several days, in full sight through his picture window, until his mouth begins to water for sardines. He goes out to the truck, unlocks the truck’s rear doors, swings one open and is blown back by a hot wave of rotten fish stench. He charges into the house, calls the man he bought the truckload from and starts screaming through the phone how he’s been cheated… the sardines stink to holy hell, they’re rotten and inedible! The previous owner calmly explains to him, “Those aren’t eating sardines, you schmuck, those are buying and selling sardines.”
In the frenzy of excess speculation, greed and irresponsibility that infested our economy all too recently, yesterday’s derivatives became today’s buying-and-selling sardines. No matter who opened the package then, they stunk.
We’re left with the big guys blaming the other big guys for not examining the “truckload” closely enough to get a whiff of the rot within—or, to put into plain language what the big guys converse in with numbers, for not being distrustful enough.
A brief recap (in plain language): AIG was the primary insurer of Goldman Sachs’ derivatives, thereby enabling the ratings agencies to give their triple AAA blessing to Goldman Sachs’ “sardines.” Goldman Sachs repaid them by playing both ends against the middle: selling the derivatives and selling AIG short in the event AIG couldn’t fulfill its insurance commitments, ultimately making a fortune; and by demanding additional collateral from AIG, which hastened its downfall, and by subsequently receiving 100 cents on the dollar when the government bailed out AIG. Do you believe this—there’s nothing wrong with any of it?! Unless you believe in ethics. Disclosure. Fair play.
Thus far (in plain language): Thanks to government funds fulfilling AIG’s commitment, the bottom line is AIG saved Goldman Sachs’ ass. And thanks to the staggering cost to the government, AIG became, overnight, the newest company everybody loved to hate.
Business is business (in plain language): AIG planned to retain Goldman Sachs to advise the company regarding its restructuring. But the government stepped in again, this time to make Goldman Sachs the newest company everybody loves to hate.
Of what interest is it to this site? Two days after our Pickle Award Poll asked: Which Partnership Was Most Clearly Not Made in Heaven?, AIG broke off its almost-on-again relationship with Goldman Sachs to run to the open arms of two waiting suitors, Citigroup Inc and Bank of America Corp. Frailty, thy name is Finance! At the altar stood the intended, Goldman Sachs, solemnly swearing to take this fallen wastrel AIG for counseling or worse—but at the prospect of getting back into bed with an entity presently in more disrepute than itself, AIG grew cold-hearted and hot-footed it to the competition.
In plain language, payback is a bitch.