Brian Peters/NY/FRS 09/1612008 12:02 PM Art and I spoke with craig Broderick. To cc bcc SUbject Timothy Geithner/NY/FRS@FRS, "Michael Silva" <Michael. Arthur Angulo/NY/FRS@NY, Dianne DobbeckfNY/FRS@NY, William Rutledge/NY/FRS@NY, "Meg McConnell" < GS / AIG The notional numbers that we are using look roughly correct: we were comparing different dates, and they only had their major subsidiary numbers. $22.2 Billion in notional is now positive MTM of $9.4 Billion in GS favor v. cOllateral of $7 Billion posted by AIG. An additional $1.5B COllateral call is in dispute. Net exposure is $2.3 Billion. They have credit hedges of $2.5 Billion, $500 mm of which is internal, so they are roughly flat. We pushed for their economic view of the closeout risk (further MTM losses resulting from large-scale forced liquidations), that they were not able to provide. So how does this differ from our analysis? 1. We do not have information on COS hedges bought with AIG as reference asset. 2. Our "All Other COO" number is an economic risk estimate. After AIG fails, the protection goes away and the firm is left with an unhedged ABS COO position. Our loss estimate assumes these positions fall in value as AIG's holdings are sold into the market. Our haircut works out to something greater than 25%, say 30- 33%, of the current MTM value of the security. For us this generates the bulk of the potential economic risk ($6 billion). 3. They did not have estimates of the loss associated with their securities borrowed exposure. We don't have a real sense of the loss here either. We assumed the securities (mostly structured finance securities) were seized by the dealer and sold into the market. We took an arbitrary 10% writedown on these. Bottom line: their number is essentially the current number. They've written the COO portfolio down by half. Our analysis tries (crudely) to look at market effects, and could be too dark. Hard to get more precise, though. CONFIDENTIAL FRBNY-TOWNS-Rl-195659

Brian Peters Frbny Towns r1 195659

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Page 1: Brian Peters Frbny Towns r1 195659

Brian Peters/NY/FRS

09/1612008 12:02 PM

Art and I spoke with craig Broderick.

bcc

SUbject

Timothy Geithner/NY/FRS@FRS, "Michael Silva"<Michael.

Arthur Angulo/NY/FRS@NY, DianneDobbeckfNY/FRS@NY, William Rutledge/NY/FRS@NY,"Meg McConnell" <

GS / AIG

The notional numbers that we are using look roughly correct: we were comparing different dates, and they only had their major subsidiary numbers.

$22.2 Billion in notional is now positive MTM of $9.4 Billion in GS favor v. cOllateral of $7 Billion posted by AIG. An additional $1.5B COllateral call is in dispute.

Net exposure is $2.3 Billion.

They have credit hedges of $2.5 Billion, $500 mm of which is internal, so they are roughly flat.

We pushed for their economic view of the closeout risk (further MTM losses resulting from large-scale forced liquidations), that they were not able to provide.

So how does this differ from our analysis?

1. We do not have information on COS hedges bought with AIG as reference asset.

2. Our "All Other COO" number is an economic risk estimate. After AIG fails, the protection goes away and the firm is left with an unhedged ABS COO position.Our loss estimate assumes these positions fall in value as AIG's holdings are sold into the market. Our haircut works out to something greater than 25%, say 3033%, of the current MTM value of the security. For us this generates the bulk of the potential economic risk ($6 billion).3. They did not have estimates of the loss associated with their securities borrowed exposure. We don't have a real sense of the loss here either. We assumed thesecurities (mostly structured finance securities) were seized by the dealer and sold into the market. We took an arbitrary 10% writedown on these.

Bottom line: their number is essentially the current number. They've written the COO portfolio down by half. Our analysis tries (crudely) to look at market effects,and could be too dark. Hard to get more precise, though.

CONFIDENTIAL FRBNY-TOWNS-Rl-195659