Goldman finance chief says firm made mistakes, lost money on high-risk deals

By AP
Thursday, July 1, 2010

Goldman CFO says firm lost money on risky deals

WASHINGTON — The finance chief of Goldman Sachs said Thursday the firm made mistakes in the leadup to the financial crisis and was burned by losses on high-risk loans and mortgages.

David Viniar, CFO of the Wall Street giant, addressed the firm’s derivatives trading in testimony to a special panel investigating the financial crisis.

“We made our fair share of mistakes,” he told the Financial Crisis Inquiry Commission, a bipartisan panel that is investigation the origins of the financial meltdown. “We lost a considerable amount of money.”

Goldman Sachs profited from its bets against the housing market before the crisis. Its derivatives dealings have brought it harsh scrutiny. The firm continued to reap huge profits after accepting federal bailout money and other government subsidies.

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 are discussing a dispute between Goldman and bailed-out American International Group Inc. 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. AIG sold billions of dollars of credit default swaps, guarantees on mortgage securities that ended up forcing AIG to pay out billions after the subprime mortgage bubble burst in 2007. The result was the $182 billion taxpayer bailout — the biggest of the federal rescues — after AIG nearly collapsed and helped spark the financial crisis.

Goldman demanded in July 2007 that AIG put up about $1.8 billion in collateral. “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,” David Lehman, a Goldman managing director, said in his testimony. Goldman did not, however, reduce its demands to the amounts that AIG offered, but kept its demands at levels determined by market prices, Lehman says.

Much of the federal rescue money for AIG went to meet the company’s obligations to its Wall Street trading partners on credit default swaps. A major beneficiary of the AIG money was Goldman, which received $12.9 billion.

A former top executive of AIG said Wednesday that if he had been allowed to keep his job, he could have saved taxpayers a bundle.

“I think I would have negotiated a much better deal for the taxpayer than what the taxpayer got,” Joseph Cassano, the former chief executive of AIG’s Financial Products Division, told the inquiry panel.

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