For more than three years, AIG's Joe Cassano has insisted that his firm was careful only to assume the credit risk on the "super-senior" tranches of a CDO, only the most senior of tranches rated triple-A. A document released by the FCIC shows that AIG also among the largest investors in some of the most deeply subordinated tranches of the CDOs that it insured. According to a schedule of trades prepared by Goldman Sachs detailing trades on its notorious ABACUS synthetic CDOs, AIG bought subordinate tranches of ABACUS 2005-3, ABACUS 2005-CB1, and ABACUS 2005-2. . The other big "investor" in the subordinated tranches was Goldman's own CDO desk. This new information demonstrates, once again, that the CDO market was more of an orchestrated illusion than it was a reality, and that almost everything is kept secret in order to protect the guilty.
(More details shortly.)