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Subpoenaed documents show Goldman Sachs offered to 'tear up' AIG derivatives contracts at 'right price' before NY Fed took over negotiations.

This is not without complexity. Let us go over what we know.

AIG (AIG) has said they were negotiating "tear-ups" with counterparties at 50 cents on the dollar before the NY Fed told them to 'stand down' in negotiations with counterparties. 'Stand down' was the exact language from emails unearthed last week by Hugh Son of Bloomberg.

Goldman (GS) openly admits that they were willing to tear up contracts with AIG for the 'right price,' as you will see below.

But Goldman CEO Lloyd Blankfein told Angelides and the FCIC panel last week that they were 'never asked' by the the New York Fed negotiators, working on behalf of AIG, to accept any haircut, or less than 100 cents on the dollar.

The only logical conclusion is the following -- somebody's lying.

Either New York Fed officials lied to investigators and reporters when they said that they had worked for a week to extract haircuts from AIG counterparties.

OR,

Goldman Sachs CEO Lloyd Blankfein was lying when he testified under oath that haircuts were never proposed by NY Fed negotiators.

Considering that Goldman has been forthright about the many discussions it had with AIG (pre-bailout) attempting to reach agreement on a tear-up price, it doesn't make sense for them to falsely claim that the NY Fed officials never asked them to take a haircut.

It sounds like Goldman Sachs just threw the New York Federal Reserve, or at least the portion devoted to managing the AIG bailout, squarely and directly in front of a 10-ton House Oversight committee bus, named Issa.

The only problem with this, as I will be explaining later, is that the NY Fed, though guilty of malfeasance, is not the bank we should be focusing on, and Geithner is not the individual.

It's Goldman Sachs, Lloyd Blankfein, Ed Liddy, Dan Jester and the ringmaster, Henry Paulson. More coming.

From Bloomberg

Source: Proposed AIG Haircuts: Somebody's Lying