Contingencies Online - September/October 2011

A Shorn Giant

Boyd mentions, but doesn’t emphasize,
the advantage Goldman wrought from its
risk management practices. While other
mortgage bankers were “ignoring excep-
tionally clear warning signals from their
own risk-management staffs and systems,”
Goldman risk managers “had unlimited
authority to question, dispute, or analyze
anything the firm did with capital.”
Goldman’s risk-management chief
worked down the hall from the CFO.
He had open access to the president
and the chief operating officer. As AIG’s
problems multiplied, Goldman hedged,
buying swaps on AIG debt. It’s interest-
ing that while Boyd lays out Goldman’s
risk management so carefully, he never
contrasts it with the top-down risk man-
agement Hank practiced. AIG’s end, of
course, played out on the front pages,
along with the ensuing death of Lehman,
the spiraling cash calls, the government
bailout. Boyd’s story concludes with
the Federal Reserve offering an $85 bil-
lion credit facility in exchange for 79.9
percent ownership of the company. An
epilogue details how the government’s
bailout and its ownership both grew.
AIG remains a property-casualty giant,
but is shorn of most everything else.

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