Last Updated Jan 14, 2010 1:04 PM EST
In 2007 Goldman was up to its Guccis in the mortgage security market, selling as safe more than $40 billion of products it knew to be seriously flawed. To hedge its bets Goldman bought "insurance" from AIG in the form of $13 billion in credit default swaps.
According to the Wall Street Journal, Angelides is a former California state treasurer with a reputation as a "pit bull." He asked why Goldman thought it necessary to take out insurance against investment grade mortgages it was selling as safe. He then likened it to selling a car knowing it had faulty brakes and taking out a life insurance policy on the driver.
Blankfein's response: in the rough-and-tumble world of Wall Street it's "buyer beware." AIG and any other company that sold this insurance to Goldman should have known what they were doing. It was AIG's responsibility to check the brakes before it took the vehicle for a test drive.
And in this respect AIG was blissfully ignorant. But let's take the analogy one step further. AIG bought a truckload of this stuff from Goldman and then sent that truck careening down the highway with bad brakes. The truck took out every car on the road, knocked down overpasses, wiped out stores, injured millions and caused a kind of road rage never seen before.
So who's responsible for those "faulty brakes?" Testifying for Goldman Sachs, Blankfein admitted to "improper" behavior. But this did not stop Goldman from taking $13 billion from taxpayers in the AIG bailout.
And let's not forget that Blankfein's predecessors played important roles in the government. Former Goldman CEO Henry Paulson was Treasury Secretary and former Goldman CEO Stephen Friedman was head of the New York Federal Reserve, which negotiated the AIG bailout.
When you are in an auto accident, remember. The traffic cop can make all the difference.