Goldman Sachs Group Inc. (NYSE: GS) defended how it set prices for illiquid mortgage derivatives before the rescue of American International Group (NYSE: AIG) before the Financial Crisis Inquiry Commission on Monday.
The data provided to the congressional panel tasked with investigating the causes of the financial crisis included mortgage-related trades between May 2007 and November 2008, which the New York-based firm reported in a nine-page document on its website. The trades and other market information suggested that prices were falling, which Goldman said led to demands for collateral from AIG.
Earlier in the year, FCIC members questioned whether or not Goldman Sachs intentionally discounted prices to push markets lower because it had bet on a decline in the value of sub-prime mortgage debt. Company executives said in the hearing that the firm’s prices were merely a reflection of whati t saw happening in the marketplace.
The Wall Street Journal provided a detailed report of Goldman Sachs Group Inc. (NYSE: GS)’s response to the FCIC on its website on Sunday night.
At the heart of the matter is a dispute whether or not Goldman Sachs Group Inc. (NYSE: GS) had a role in the near-bankruptcy of AIG or whether or not the company was simply a careful risk manager who was focusing on making sure their assets were marked at a fair value. In 2007, Goldman Sachs benefited by making bets against securities backed by subprime mortgage loans. The firm was also one of the largest buyers of AIG’s insurance covering mortgage-backed securities.
