Former AIG exec defends his actions
The former head of the division that brought down American International Group Inc. and triggered a huge government bailout broke a two-year public silence Wednesday, defending his actions at the insurance giant and saying he could have saved taxpayers money if he had remained there.
“I think I would have negotiated a much better deal for the taxpayer than what the taxpayer got,” Joseph Cassano, who ran AIG’s financial products unit, told the Financial Crisis Inquiry Commission.
The federal government has spent $132 billion under the AIG bailout, which has left taxpayers owning 80% of the company. Congressional analysts, however, estimate the government’s net loss from the rescue will be only $36 billion — after the 80% stake is sold.
Under Cassano, the financial products unit ventured in a big way into selling credit default swaps, derivatives that act like insurance on bonds.
The swaps are designed to pay off buyers of the securities if a bond issuer defaults. AIG sold many swaps on bonds backed by subprime home loans, whose value plunged during the mortgage meltdown.
By September 2008, at the height of the financial crisis, holders of the swaps were demanding billions of dollars from AIG to reflect the bonds’ sliding values.
With the insurer on the brink of bankruptcy — and Lehman Bros. having collapsed only a week before — the government stepped in to rescue AIG.
Cassano testified that had he stayed at the company — he resigned under pressure in early 2008 —
he could have negotiated with the swap holders to let AIG make smaller payments than they were demanding.
Because the mortgage bonds insured by AIG have since recovered some of their value, Cassano told the commission, the insurer’s portfolio of mortgage-linked holdings would have performed well if the government hadn’t liquidated some of them near the bottom of the market as part of the bailout.
Cassano said he stood by a 2007 statement in which he said he didn’t expect that portfolio to incur “any realized, economic losses.”
Of the unliquidated AIG holdings now in government hands, Cassano said, “I believe these portfolios are standing the test of time today … as they are paying back the taxpayer.”
In the face of harsh questioning from the panel, including its chairman, former California State Treasurer Phil Angelides, Cassano testified calmly.
In response to a question, he said he received more than $300 million in compensation during his time at AIG.
The U.S. Justice Department recently ended a criminal investigation against Cassano and other former AIG executives without filing charges. The Securities and Exchange Commission ended a parallel civil probe without suing Cassano.
Also appearing at the hearing Wednesday were former AIG Chief Executive Martin Sullivan as well as executives of Goldman Sachs Group Inc., which received billions of dollars of the government bailout money that AIG used to liquidate some mortgage-related holdings.
