Executives of Goldman Sachs were grilled by members of an inquiry panel Thursday on the firm's full recovery of billions in debt in 2008 from crippled AIG, for which U.S. taxpayers footed the bill.
After a blowup of its credit default swaps, insurance conglomerate American International Group Inc. received bailout aid that eventually reached $182 billion, the biggest of the federal rescues. About $40 billion of it went to meet AIG's obligations to its Wall Street trading partners on the swaps. A major beneficiary was Goldman, which received $12.9 billion.
"You were 100 percent recompensed on that deal. ... And the only people who were out money were the American public," Brooksley Born, a member of the Financial Crisis Inquiry Commission, told David Viniar, Goldman's chief financial officer, at a hearing.
The panel's vice chairman, Bill Thomas, said the government "paid 100 cents on the dollar for something that was going for 48 cents at that time."
Viniar said he didn't see it that way. "The government stepped into AIG's shoes" and therefore had to honor its contract with Goldman in full, he said.
AIG sold billions of dollars of the swaps, guarantees on mortgage securities that ended up forcing the company to pay out billions after the subprime mortgage bubble burst in 2007.
Goldman Sachs Group Inc. profited from its bets against the housing market before the crisis. Its derivatives dealings have drawn harsh scrutiny. The firm continued to reap huge profits after accepting federal bailout money and other government subsidies.
A previously disclosed 2007 e-mail has Viniar indicating that the firm made more than $50 million in one day on bets that the housing market would founder.
Viniar and other executives also discussed a dispute between Goldman and AIG in 2007-2008 over the amount of collateral that AIG needed to put up because of the plummeting value of the mortgage securities it insured.
Goldman demanded in July 2007 that AIG put up about $1.8 billion in collateral. "At various times during the dispute, Goldman was willing to, and did, receive less than it was entitled to from AIG as a partial payment of its collateral demand," said David Lehman, a Goldman managing director who appeared with Viniar. Goldman did not, however, reduce its demands to the level that AIG offered, but kept its demands at levels determined by market prices, Lehman said.
Also appearing at Thursday's hearing: former AIG executives Stephen Bensinger, Andrew Forster and Elias Habayeb; Gary Gensler, chairman of the Commodity Futures Trading Commission; Eric Dinallo, the former top insurance regulator in New York state; and Clarence Lee, a former official of the federal Office of Thrift Supervision.
AIG was regulated by the OTS, but its exploding business of credit default swaps was run out of London and elsewhere, and fell through the regulatory cracks. The result was the massive taxpayer bailout giving the government an 80 percent stake in the company.
A former top executive of AIG said Wednesday that if he had been allowed to keep his job, he could have saved taxpayers a bundle.
"I think I would have negotiated a much better deal for the taxpayer than what the taxpayer got," Joseph Cassano, the former chief executive of AIG's Financial Products Division, told the inquiry panel.