I hate to get sucked into the vampire squid line of thinking about Goldman, but the only explanation i can think of for why AIG got rescued and the monolines did not is because Goldman had significant exposure to AIG and did not have exposure to the monolines.
When it became clear that AIG could face bankruptcy, Goldman’s plan to profit by shorting ABS CDOs was threatened. While they had the collateral posted, thanks to the downgrades, this collateral could be tied up or lost if AIG went bankrupt. This was a real crisis for Goldman – they thought they had outsmarted the subprime market with their ABS CDOs and outsmarted all of the other banks by getting collateral posting from AIG when they got downgraded. But if AIG went away, this strategy would have blown up and cost Goldman billions.
All of this is essentially factual and based, for the most part, on public information.
As a matter of speculation, i believe that Goldman and their helpers deliberately pumped up the media with the threats that the subprime market posed in order to hasten the collapse of the subprime market. this allowed them to realize their gains sooner from shorting ABS CDOs – they had become impatient waiting for it to blow up.
In addition, I believe that Goldman and their helpers – including their many connections with the White House and the Fed – pumped up concerns about the systemic risk that the market was facing from a Lehman and AIG failure, so that they could force the government to step in and bail out AIG. This would also explain why Lehman was not bailed out. Lehman didn’t really matter to Goldman. But the fear created by Lehman’s failure served as a good excuse for why they should rescue AIG.
It's really the perfect cover story, the perfect cinematic adaptation. Now, suitably simplistic for the infantilised intellectuals who are expected to fall in love with the story, as they fall in love with superheros and magicians, Goldman Sachs appears in steampunk cloak, top hat, goatee and bottle green specs, the shadowy player, the sole culprit, plotting the world’s undoing. The story posits an innocent world, with institutions essentially neutral, that is unguarded and vulnerable, and GS as that energy which arrives to upset the dull but harmless routine - a flamboyant, nefarious intruder, with its man placed inside the government who is not of the government but a saboteur, inimical to the government's true nature and mission. The attraction of a story starring GS as infiltrator (a familiar story which has featured the Saudis, the Israel Lobby, and recently Obama as agent of reparations-hungry Black America), cunningly duping the innocent American Congress and executive, surreptitiously pulling the strings of the US government and US finance, is that it offers its audience a little thrill of dissent, eliciting a sensation of self-satisfied savvy, the vanity-flattering opportunity to feel, and to be acknowledged as, too wise to be gulled, and offering this precisely in order to gull again, to successfully conclude the latest episode of a now endless spectacular con game, confirming all the hoary old assumptions and beliefs that count, the undisturbed believability-status of which will ensure the success of the next episode.
In the official version of now ancient events, GS is portrayed as the sole conscious actor in the entire global financial and political realm, and the glamour of such a figure, with all the density and attraction of an allegory and an avatar combined, allows for the implicit absolution of all to which it is proposed as contrast and competitor. It is the sole self-interested self-motivated agent possessed of knowledge and the capability of praxis. And it is observed, like the villain in a caper movie, narrowly, indeed obsessively and uninterruptedly, focussed on bringing one project to completion. Its every move is part of an effort to bring one simple bet good, and all resources are devoted to achieving this one goal by means of one linear narrative plot.
Everyone else, including the White House, the Fed, Lehman, Bank of America, Citi and JP Morgan, and the central banks of the other rich nations and their major financial institutions, are passive and ignorant, simply holders of bets sitting in the VIP boxes to watch and wait out the financial weather to see how rich they end up at the break.
The facts we know arrange themselves easily and compellingly as another, bigger, longer story than that of GS’ big short caper imperilled and saved, a story of a much less cinematic sort of conspiracy, conspiracy not "conspiracy", that is the conspiracy indispensible to routine strategy and policy. The facts available now allow one to see several arcs of this long planned strategy as it is executed - constantly carefully managed - with more than one line of "plot” (there is more than one caper, more than one protagonist making one big short in real history). That strategy includes the whole eight year Bush regime episode and all its ooopsies and whoopies and apparently ad hoc and disconnected outrages and 'errors', and all its achievements for the ruling class, for US imperial interests, for the US leading finance bloc and for its own personnel. It also includes the Obama phenom, the last act of that miniseries and the first of its spin-off, featuring the cleansing of the executive, the refreshing of Brand America, and the restoration of formal democracy and democrats (‘the ones who spend"), etc, but this “vampire squid” single firm, single scam story gives an alternative account for most of the facts and affirms the paradigms threatened by the fact that populations still experience a reality of which a mass produced hyperreality is only a part.
Mass culture in the imperial core, and the core within the periphery, (the global mass culture of the prosperous minority) is in such a state now that the fact that what will be the official narrative of the financial crisis and bailout, offered as closure for the marks once we have resigned ourselves to having been taken, as the consolation of a completed narrative, perfectly fits a cinematic formula - that it can be told as a film treatment exactly to the Syd Field pattern, with three acts, and a sine curve shape, plot points that ring out and alter the direction of the tale, and all the usual motifs – does not render it suspicious but indeed makes it more believable for the official opiners whose task it is to (voluntarily) accept the explanation and repeat it until it is simply common knowledge, beyond challenge, the kind of thing only a paranoid schizophrenic would doubt. And this would not be possible were it not for a massive shift, over the past twenty five years or so, in popular attitudes toward commodities, especially entertainment and infotainment, a massive blossoming of credulity, a widespread infantilisation and the provocation of intense, irrational attachments achieved by advances in advertising and marketing. That crappy genre entertainment now enjoys the status of ethnographic, sociological and political analysis, with hundred million dollar thrillers treated as documents simply exposing how human affairs really work, allows for the successful selling of the most absurd and implausible pseudo-explanations of unfolding history, the manipulation of populations by them, and even the recruiting of masses of volunteers to police the minority of dissidents among them.