CFO says Goldman entitled to payout
Asserts AIG debt had to be honored
WASHINGTON — A Goldman Sachs executive told an inquiry panel yesterday that the firm had no regrets about collecting billions of dollars in taxpayer money for correctly predicting the demise of the US housing market.
David Viniar, Goldman’s chief financial officer, said Uncle Sam had an obligation to honor American International Group’s full debts. The firm was entitled to be paid $12.9 billion out of the $182 billion bailout that went to insurance giant AIG.
‘‘The government stepped into AIG’s shoes’’ and therefore had to honor its contract with Goldman, Viniar told the congressionally appointed panel investigating the financial meltdown.
Members of the Financial Crisis Inquiry Commission couldn’t understand how Goldman could take the full amount owed by AIG, knowing that US taxpayers were picking up the tab at the onset of the worst recession since the 1930s.
‘‘You were 100 percent recompensed on that deal, and the only people who were out money were the American public,’’ said Brooksley Born, a panel member.
The government ‘‘paid 100 cents on the dollar for something that was going for 48 cents at the time,’’ said Bill Thomas, the panel’s vice chairman and a California Republican who previously served as chairman of the House Ways and Means Committee.
The panel investigated Goldman’s actions for a second day of hearings examining the firm’s relationship with AIG, and how the two’s derivatives trading helped precipitate the financial crisis.
AIG sold billions of dollars of credit default 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 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.
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.
And the Goldman executives defended the lower values they placed on transactions with AIG, resisting suggestions that Goldman’s demands for increased collateral helped push the company to the brink of collapse.
‘‘Goldman’s prices were formed by diligently observing and reviewing the best available information from the market through its role as a market maker,’’ said David Lehman, a Goldman managing director.
Goldman demanded in July 2007 that AIG put up about $1.8 billion. ‘‘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,’’ Lehman said. Goldman did not, however, reduce its demands to the level that AIG offered, but kept its demands at levels determined by market prices, he said.
Also appearing at yesterday’s hearing: three former AIG executives; Gary Gensler, chairman of the Commodity Futures Trading Commission; and Eric Dinallo, the former top insurance regulator in New York state.
A former official of the Office of Thrift Supervision defended the federal agency’s oversight of AIG in 2006-2008.
‘‘We didn’t have the resources,’’ said Clarence Lee, who was managing director for complex and international organizations at the agency. Still, he said, the office made ‘‘increasing supervisory criticism of AIG’s risk management’’ and other practices during the period and took enforcement actions.