Goldman Sachs 'reliant on Citigroup and Lehman Brothers during crisis'

26 July 2010

Goldman Sachs was reliant on Lehman Brothers and Citigroup in protecting it from the near failure of American International Group (AIG) at the height of the financial crisis.

Newly-published documents have revealed that Citigroup was the largest provider of credit default swaps (CDS) – which pay out to the owner in the event of a default - on AIG to Goldman Sachs, with Lehman Brothers being the fifth largest, reports Bloomberg.

AIG was rescued with a $182.3 billion government bailout and Goldman Sachs has previously argued that it was not dependent on this for its own survival as it had collateral and CDS to protect itself.

But Joshua Rosner, an analyst at research firm Graham Fisher & Co, said the financial problems at Citigroup and Lehman Brothers show that Goldman may have struggled to collect on the CDS.

"Clearly Goldman's calculation was more tied to their expectation of the political dynamics of forcing moral hazard than the fundamental realities of the financial strength of counterparties," he suggested.

Earlier this month, Goldman Sachs agreed to pay a $550 million to settle claims it had helped to create a subprime mortgage package that was designed to fail.

By Gary Cooper

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