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The blockbuster case brought against Goldman Sachs on Friday by American securities regulators put a particularly exotic species of structured security—the synthetic collateralised debt obligation—in the public spotlight.

The CDO at the centre of the Goldman case was particularly toxic, with some 99% of the underlying assets downgraded by ratings agencies within a year of the deal closing. The suit focuses on the influence that a hedge fund, Paulson & Co, may have had on the CDO’s construction, and whether Goldman should have told prospective investors more about this influence. Paulson famously bet heavily against the mortgages of the sort that were packed into the CDO that Goldman sold to investors. 

However, it’s not as if other CDOs were performing well while Goldman’s tanked. Some 70% of CDOs rated by Fitch were downgraded during 2009. Less than half of the securities that began 2009 rated AAA ended the year that way, with 16% of formerly AAA securities plunging all the way to “junk” status in a matter of months.

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Earlier today, the agency auditing America’s bank bailout funds—or the Office of the Special Inspector General for the Troubled Asset Relief Program, if you prefer—published a report about AIG. Specifically, the agency details the efforts of the New York Federal Reserve to negotiate with banks on the other sides of AIG’s ill-fated trades in the credit default swap market.

As the agency describes it, up to US$30bn was authorised in November 2008 to purchase the rapidly souring collateralised debt obligations on which AIG’s trades were based. In the end, US$27.1bn was paid to AIG’s counterparties for the assets. They were also allowed to keep US$35bn in collateral that AIG posted before the government-funded vehicle bought out the contracts.

“Questions have been raised,” the report notes, about whether the deal constituted a “backdoor bailout” of banks that did business with AIG. This remains a contentious issue because the government—as described in great detail in the report—was unable to force “haircuts” on the price of the assets acquired and, even worse, because the majority of beneficiaries from the deal were foreign. (It also didn’t help that the largest domestic recipient was Goldman Sachs.)

Although the sums have been reported before, seeing Société Générale at the top of the list of banks to rake in funds funnelled “inexorably and directly” from US government coffers—quelle horreur!—is reigniting criticism of Timothy Geithner, president of the New York Fed during the AIG affair and now US treasury secretary.

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