We just got a new insight into a crucial crisis-era dispute between Goldman Sachs and AIG

Joseph CassanoJoe Cassano

The National Archives did a document dump Friday
, releasing transcripts, meeting agendas and confidentiality agreements from the Financial Crisis Inquiry Commission.
The commission was set up in the aftermath of the financial crisis by Congress to look into the causes of the crash, and the documents are a goldmine of information.

We’re reading through it, and have already written about Warren Buffett’s thoughts on executive compensation.

Another document which caught our eye is a memo from an interview Joe Cassano.

To recap, Cassano was the chief executive of AIG Financial Products, the unit at the insurance giant responsible for the outsized losses that led to its bailout.

The business would underwrite a kind of insurance on collateralized debt obligations (CDOs). When those CDOs fell in value, AIG found itself under pressure to post more collateral to those who had bought the insurance, and were on the other side of the trade.

Those collateral calls led to a dispute with Goldman Sachs. Goldman was in some quarters accused of helping to bring AIG down by demanding collateral. Goldman Sachs’ version of events is posted to their website.

The memo from the interview with Cassano sets out his version of events, and his dealings with Michael Sherwood, co-chief executive of Goldman Sachs International, and David Viniar, the former chief financial officer.

In short, Goldman’s early collateral calls kept changing, which Cassano thinks is evidence that “no one could get a handle on the market.” Other companies also sought collateral from AIG, but Goldman was asking for the most.

Even as late as January 2008, as it disputed Goldman’s collateral demands AIG was assuming full value for some of the securities. That’s something Goldman executives described as “incredible.”

According to a separate memo from an interview with Goldman Sachs’ chief Lloyd Blankfein, Blankfein told the commission that he became aware of the dispute in late 2007.

“I was posted that the conversations were hard, that [AIG] owed us money and weren’t paying, it and were being very stubborn about the valuation issue,” he said, according to the memo.

Blankfein said he spoke to AIG CEO Joe Sullivan to encourage a resolution, and that he recalled Sullivan expressing deference to Cassano on the call, conveying the view AIG was confident in its marks.

Here is the excerpt from the Cassano memo:

The National Archives
The National Archives
The National Archives
The National Archives

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