Goldman Sachs pushed AIG over the edge and you and I got stuck with the bill:

Behind-the-scenes disputes over huge sums are common in banking, but the standoff between A.I.G. and Goldman would become one of the most momentous in Wall Street history. Well before the federal government bailed out A.I.G. in September 2008, Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash. That ultimately provoked the government to step in.

With taxpayer assistance to A.I.G. currently totaling $180 billion, regulatory and Congressional scrutiny of Goldman’s role in the insurer’s downfall is increasing. The Securities and Exchange Commission is examining the payment demands that a number of firms — most prominently Goldman — made during 2007 and 2008 as the mortgage market imploded.

Goldman played hardball with AIG and was rewarded handsomely.

Several former Goldman partners said it was not surprising that Goldman sought such tough terms, given the firm’s longstanding focus on risk management.

By July 2007, when Goldman demanded its first payment from A.I.G. — $1.8 billion — the investment bank had already taken trading positions that would pay out if the mortgage market weakened, according to seven former Goldman employees.

Still, Goldman’s initial call surprised A.I.G. officials, according to three A.I.G. employees with direct knowledge of the situation. The insurer put up $450 million on Aug. 10, 2007, to appease Goldman, but A.I.G. remained resistant in the following months and, according to internal messages, was convinced that Goldman was also pushing other trading partners to ask A.I.G. for payments.

On Nov. 1, 2007, for example, an e-mail message from Mr. Cassano, the head of A.I.G. Financial Products, to Elias Habayeb, an A.I.G. accounting executive, said that a payment demand from Société Générale had been “spurred by GS calling them.”

Mr. Habayeb, who testified before Congress last month that the payment demands were a major contributor to A.I.G.’s downfall, declined to be interviewed and referred questions to A.I.G. The insurer also declined to comment for this article. Mr. van Praag, the Goldman spokesman, said Goldman did not push other firms to demand payments from A.I.G.

Later that month, Mr. Cassano noted in another e-mail message that Goldman’s demands for payment were becoming problematic. “The overhang of the margin call from the perceived righteous Goldman Sachs has impacted everyone’s judgment,” he wrote to five employees in his division.

By the end of November 2007, Goldman was holding $2 billion in cash from A.I.G. when the insurer notified Goldman that it was disputing the firm’s calculations and seeking a return of $1.56 billion. Goldman refused, the documents show.

In many of these deals, Goldman was trading for other parties and taking a fee. As the mortgage market declined, Goldman paid some of these parties while waiting for A.I.G. to meet its demands, the Goldman spokesman said. But one reason those parties were owed money on the deals was that Goldman had marked down the securities.

In the end, Goldman got what it wanted, thanks to the American taxpayer:

A.I.G. shares fell 6 percent the day the report was published. Three weeks later, the United States government agreed to pour billions of dollars in taxpayer money into the insurer to keep it from collapsing.

The government would soon settle the yearlong dispute between Goldman and A.I.G., with Goldman receiving full value for its bets. The federal bailout locked in the paper losses of those deals for A.I.G. The prices on many of those securities have since rebounded.

The Wall Street banksters are playing dangerous, high stakes games with our nation's economic well being. We need more reforms so that Wall Street won't ever again demand another bailout.

The Securities & Exchange Commission is responsible for enforcing securities and financial regulatory law in this country. In the lead up to and during the beginning of the global financial crisis three men were asleep at the wheel: former SEC head Christopher Cox, former Fed Chair Alan Greenspan and current Fed Chair Ben Bernanke.

Accountable America Chairman Tom Matzzie said that these three men must answer for their actions:

It’s about time. Chairman Angelides is right to call Cox and Greenspan. If they decline to appear they should be subpoenaed.

Cox macheted the law enforcement functions of the SEC—one of the reasons Bernie Madoff was never caught.

Cox in particular allowed the banks to over-leverage themselves by neglecting his role as SEC chair to protect the public. An SEC bank supervision program, started in 2004 by his predecessor, was abominably managed by Cox and has been called one of the single greatest factors contributing to the financial crisis. Cox’s 17-year record and demeanor as chairman was always to protect the Wall Street banks rather than investors, the public and the economy at large.

It is easy to forget that Alan Greenspan ran the Fed for most of the period when the housing bubble was being inflated. He sat by as the bubble grew with few critical words until after he left his post.

The last two days, Accountable America has run newspaper ads calling on the Commission to investigate the regulators who failed to protect the public and the economy. Support our efforts.

If you're sick and tired of the unaccountable banksters paying themselves record bonuses after their actions helped usher in the worst financial crisis since the Great Depression, you should support the Financial Crisis Responsibility Fee. Heather Booth of Americans for Financial Reform does and explains why you should too:

Americans for Financial Reform, and our more than 200 coalition partners, applaud President Obama’s proposal for a Financial Crisis Responsibility Fee as an important step in protecting taxpayers and ensuring that Wall Street is held accountable. The fee the President proposes will help taxpayers recoup some of the money used to bail out the big banks and financial institutions, and it reaffirms the basic principle that the biggest lenders cannot gamble recklessly and then expect taxpayers to pay their debts.

The President is right, that to get our economy back on track, we need that principle—and accountability and fairness-- to be the ground rule for the financial markets.

This is a good first step - but, more needs to be done. Much more. Heather Booth has a good idea:

Passage of a Financial Speculation Tax (FST) is another important piece of such reform. An FST, in addition to raising $100- 150 billion a year would also rein in Wall Street by discouraging excessive speculation.

Robust financial reform, including an independent CFPA, exchange trading of derivatives, and rigorous, democratic, and accountable systemic risk management is also vitally important to meet these goals.

If you really want to send a message to the banksters who messed up this economy, discourage them from making risky investments. We've seen what happens when risky investments go bad: the global economy is brought to it's knees. Millions lose their jobs. Millions are forced out of their houses. People suffer.

The Financial Speculation Tax (FST) will cause the banksters to think twice before risking the entire global economy on the equivalent of a game of roulette again. Let's get it passed.

The Financial Crisis Inquiry Commission is meeting to start their review of what happened during the crisis that has dragged our economy into what some are calling the Great Recession. (You can watch a LIVE Webcast of the Commission hearings on C-SPAN or online at www.fcic.gov--January 13 and 14.) Today Accountable America released a new print advertisement--appearing in Politico and Roll Call in Washington, DC--urging the Financial Crisis Inquiry Commission to hold ALL the parties involved in the crisis accountable. The ads highlight the failure of former Securities and Exchange Commission Chairman Christopher Cox to catch the fraud of convicted Ponzi-schemer Bernie Madoff, despite significant warnings to the SEC.

The Commission's hearings are an important first step--they'll feature some of the most prominent bank executives in the industry. But as the chief regulator overseeing the securities industry before and during the crisis of 2008, Cox failed to do anything that prevented the crisis. Cox appeared to be more committed to his long record helping Wall Street banks than protecting America's investors, the public or the economy at large. The SEC was too docile and ineffective. The Financial Crisis Inquiry Commission, chaired by former California State Treasurer Phil Angelides and former U.S. House Ways and Means Chairman Bill Thomas, should investigate the role that officials at the SEC, Federal Reserve and elsewhere played that allowed the foxes to get into the henhouse.

Ultimately we need real financial reforms that prevent a crisis from happening again and put a new cop on the beat protecting investors, the public and the economy. But we also need accountability.

Novel idea:

The three of us, as experienced investigators and prosecutors of financial fraud, cannot answer these questions now. But we know where the answers are. They are in the trove of e-mail messages still backed up on A.I.G. servers, as well as in the key internal accounting documents and financial models generated by A.I.G. during the past decade. Before releasing its regulatory clutches, the government should insist that the company immediately make these materials public. By putting the evidence online, the government could establish a new form of “open source” investigation.

Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story. In past cases of financial fraud — from the complex swaps that Bankers Trust sold to Procter & Gamble in the early 1990s to the I.P.O. kickback schemes of the late 1990s to the fall of Enron — e-mail messages and internal documents became the central exhibits in our collective understanding of what happened, and why.

So far, prosecutors and regulators have been unable to build such evidence into anything resembling a persuasive case against any financial institution. Most recently, a jury acquitted Bear Stearns employees of fraud related to the collapse of the subprime mortgage market, in part because available e-mail messages suggested the employees had done nothing wrong.

Perhaps A.I.G.’s employees would also be judged not guilty. But we would like to see the record to find out. As fraud investigators, we would like to examine the trading patterns of A.I.G.’s financial products division, and its communications with Goldman Sachs and other bank counterparties who benefited from the bailout. We would like to understand whether the leaders of A.I.G. understood that they were approaching a financial Armageddon, and whether they alerted their counterparties, regulators and shareholders to the impending calamity.

Sunshine is the best disinfectant. We, the people, own these companies, and, as the owners, we have a right to know what they've been up to... especially since their actions contributed to the worst economic crisis since the Great Depression! We're the ones that are suffering the most from this economic catastrophe. We deserve to know what caused this crisis. Sunshine will lead us to the truth.

Take action.