Advertise
Resources
Member, Beacon International Group, Ltd.
WASHINGTON—Senior executives of American International Group Inc. were ignorant of the terms and risks of the company's $79 billion derivative exposure to mortgage-related securities that brought the company to the brink of collapse in 2008, according to a report endorsed by the majority of the members of the government's Financial Crisis Inquiry Commission.
The report, released Thursday, examined the causes of the financial crisis that began in 2007 and said AIG's woes reflected a “profound failure in corporate governance, particularly its risk management practices.”
The report said some executives of AIG's Financial Products subsidiary were aware that the company was taking on too much risk with its credit default swaps.
“Nevertheless, they did not do enough about it,” according to the commission.
Goldman Sachs Group Inc.'s initial collateral call was “a shock to AIG's senior executives, most of whom had not even known that the credit default swaps with Goldman contained a collateral call provision,” said the report.
“As disturbing” as the senior executives' surprise at the collateral call provisions “was their firm's inability to assess the validity of Goldman's numbers,” the report said.
The report was endorsed by the Democratic members of the commission, who called for greater regulatory oversight of financial institutions. It also contains a dissent by panel's Republican members.
The full report is available at www.fcic.gov/report.
NEW YORK (Reuters)—Goldman Sachs Group Inc. said that it believed its trades with bailed-out insurer American International Group Inc. during the financial crisis were accurate, and that its collateral calls made to AIG were reflective of the conditions in a deteriorated market.