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Member, Beacon International Group, Ltd.
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.
In a response submitted to the Financial Crisis Inquiry Commission on July 28, Goldman said it priced the collateral posted by AIG based on the best available market information at the time, including observed trades, actionable bids or offers from other parties.
"We made those collateral calls based on prices that reflected the deteriorating conditions in the market for the underlying collateral in Residential Mortgage Backed Securities and CDOs," Goldman said in its report to the FCIC that was obtained by Reuters.
On July 23, a source told Reuters that Goldman Sachs had turned over a list of the counterparties to the FCIC following a recent hearing exploring the links between Goldman and AIG.
Goldman has long been criticized for benefiting from the U.S. taxpayer bailout of AIG. Taxpayers pledged up to $182 billion to address problems at AIG's financial products division.
"The foundation of our approach to risk management is based upon disciplined mark-to-market accounting," Goldman said.
Goldman said it had also used other market information obtained through its franchise for pricing collateralized debt obligations (CDOs) posted by AIG.
"From July of 2007 through November of 2008 there was observable market data which provided the basis for our collateral requests to AIG," Goldman said.
Goldman also said AIG did not have an internal pricing system to value the securities on which it sold credit protection until December 2007.
WASHINGTON (Bloomberg)—Goldman Sachs Group Inc. and American International Group Inc. representatives will appear at the next hearing of the Financial Crisis Inquiry Commission as the panel explores the role of derivatives in the credit crunch.