Goldman Sachs’s Greek adventure got an in-depth look from the New York Times yesterday. The article extends on last week’s Spiegel piece, which reported that the bank helped Greece hide the true extent of its debt through the use of specialized derivative products.  We first reported on the parallels between AIG and Greece in a post last week, following the lead of Zero Hedge.  Entry into the paper of record means the story now has legs this side of the pond, and MIT economist Simon Johnson is arguing that Goldman Sachs is set to be blacklisted in Europe.

One question looming over this story:  did Goldman position itself to profit from the Greek fiasco?  Did it use its special knowledge of Greek’s hidden debt to build profitable bets on its future downfall and rescue? If the bank’s past behavior is any guide, the answer is yes.  Ignoring the impending catastrophe (obvious from their vantage point), and failing to properly “hedge” (extract massive profits), would have been “irresponsible” (insufficiently greedy/corrupt) on the part of senior management.

Considering this, hedge fund king John Paulson’s role in Greece deserves far more scrutiny. I wrote about this last week, pointing out that they shared the same vulture flight pattern in Greece, but at the time did not realize that Paulson and Goldman actually partnered in executing massive and profitable bets against the subprime market. Are they doing the same with Greece?

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With the mounting crisis in Greece, another massive stash of toxic debt has revealed itself in a way that can’t be ignored.  Fears of a “contagious default” in the Eurozone hammered markets yesterday, with one Greek banker calling it a “wholesale selling off of the country.” Today, markets are rebounding on hopes for an EU bailout, and around we go again.

Though parallels to Dubai are obvious, Zero Hedge has noted the similarities between Greece and AIG due to the intimate involvement of Goldman Sachs in both crises.  Rumor has it that Goldman was a “bulk buyer” of Greek protection, ZH writes, and that thus “it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance.”  This is the kind of enormous leverage that helped Goldman take AIG to the cleaners at taxpayers’ expense.

Zero Hedge’s allegations are backed up by rumors, for the most part.  But there is no denying that Goldman is mixed up in Greece, between this piece from Spiegel and this recent Financial Times article on Goldman’s prominent role in the Greece “rescue.”

If the allegations are true, Goldman is once again negotiating for a giant pass-through of taxpayer money from a world superpower. There are also signs that the bank is (once again) joined by a network of hedge fund colluders in its efforts.

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Louise Story and Gretchen Morgenson had a lengthy new story up at the Times yesterday on how Goldman bled AIG to death. The piece details negotiations over payouts on swaps that Goldman had purchased from AIG. Details of the negotiations are interesting, but this paragraph jumped out at me:

In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.

It seems that Goldman was even more of a beneficiary of the AIG bailout than we previously thought. Officially, it received more than any other counterparty, but add in the Société payments and headlines that referred to “AIG Trading Partners…” or “AIG Counterparties” would have to be revised to read “Goldman Sachs.”

This is outrageous. When was this arrangement made, and why? Did Goldman use SocGen to hide the extent to which it caused (and benefitted from) the AIG catastrophe? Would the size of its taxpayer-funded bonus pools be threatened by full disclosure of the payments? Like so many other aspects of Goldman’s business, this deserves an investigation.

Bloomberg reported yesterday that the New York Fed pushed AIG to withhold key information about bonuses and swap counterparties in late 2008.  Today, the story is blowing up, with the New York Times, Wall Street Journal, and a range of other outlets picking up on the story.

There is an incredible conflict of interest at the heart of the AIG-New York Fed dealings: the very same New York Fed lawyers who pushed AIG to withhold the names of counterparties also advised Goldman Sachs on large deals in 2008.

Goldman Sachs was one of AIG’s largest counterparties, and received a controversial 100% payout on its swap contracts with the firm.

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The New York Times ran a great story on Tuesday about former AIG chief Maurice Greenberg’s latest venture, the C.V. Starr empire. Reporter Mary Williams Walsh links Greenberg’s new success to the Treasury Department capping executive pay at AIG last week: “That may hasten the exodus of A.I.G.’s talent, sending more refugees into Mr. Greenberg’s arms, since C. V. Starr is free to pay whatever it wants.”

Cornelius Vander Starr, a California-born entrepreneur, was the first American businessperson to sell insurance to the Chinese. The blanket company C.V. Starr International was established in 1919 in Shanghai and AIG would eventually grow out of it. Starr would eventually give Maurice Greenberg his first job in the insurance industry at AIG in 1962. Starr became Greenberg’s mentor and was handed the company after Starr died in 1968. After President Nixon opened up relations with China, Greenberg visited China for the first time in 1975. He would run AIG until 2005, when he resigned amid fraud allegations. Good thing he had the Starr empire to fall back on.

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Two noteworthy stories chronicling the hegemonic position of the Goldman Sachs Group appeared last week. The first was a scoop by The Guardian about an internal announcement regarding the record bonuses that Goldman will pay at the end of 2009, assuming that the company’s year-end profit projections are borne out. The second piece was a 10-page Rolling Stone spread by Matt Taibbi elucidating Goldman’s central role in every major economic bubble since the dawn of bubble economics.

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I want to raise a few points on AIG that don’t seem to be coming up elsewhere, but that need critical attention if we are to understand how this disaster came to pass and who else is implicated.

There have been a few reports that AIG stopped selling credit default swaps – the financial instruments that eventually destroyed the company – in late 2005 (the latest timeline comes from TPM). But asset-backed credit default swaps, which allow investors to short CDOs, were not even invented until early 2005, according to a Dow Jones article published on January 27, 2005. The article was titled “New Derivatives Could Boost Asset-Backed Secondary Market”:

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