AIG and Goldman Execs Defend Risky Trades Leading to Meltdown

(June 30, 2010) — While rebuffing accusations of relaxing standards, Joseph Cassano, who ran American International Group Inc.’s financial products unit between 2002 and 2008, said today that his division more than tripled the amount of risky investments it insured during the three years before the financial meltdown, the AP reported.

The FCIC’s inquiry panel chairman, Phil Angelides, reportedly questioned how AIG, the world’s largest insurer, was able to raise its issued swaps from $17 billion in 2005 to $78 billion in 2007 without compromising its standards.

Beginning today, Goldman Sachs and AIG executives, who have dodged public comment over the last two years, are testifying during a two-day Federal Crisis Inquiry Commission (FCIC) hearing. Along with Cassano, Goldman Sachs’ Chief Financial Officer David Viniar and other executives have been called to testify to review the role of derivatives. The panel is also investigating the relationship between AIG and Goldman, two companies that made some of the riskiest derivative trades before the crisis.

Since being subpoenaed, Goldman Sachs has become increasingly responsive to information requests from the FCIC, according to Bloomberg. The investment bank has additionally made its CEO Lloyd C. Blankfein available for an interview. Commission Chairman Phil Angelides said today in a conference call with journalists that on June 7, the panel subpoenaed Goldman Sachs after the firm tried to thwart a probe by overwhelming the commission with documents.

FCIC Vice Chairman Bill Thomas said today on the call that he had no question that the New York-based Goldman Sachs will cooperate with requests. “It was the lack of specificity, or even the acknowledgment that what we asked for was in the piles of documents we got, that was cleared up,” he said, according to Bloomberg.

The US Congress set up the FCIC to study the causes of the financial crisis. Chaired by Angelides, the former Democratic California state treasurer, the commission has heard testimony from most of Wall Street’s top executives and regulators.

Early this month, officials from the California Public Employees’ Retirement System (CalPERS) said they were looking over the selection of Goldman Sachs Group in the system’s real estate pool, claiming the bank failed to disclose that it faced a Securities and Exchange Commission (SEC) probe. Since the SEC’s lawsuit, several shareholders have filed lawsuits against Goldman Sachs, claiming investors were harmed by the firm’s reluctance to disclose the fact it was the target of a formal investigation.