Goldman ‘Built the Bomb’


Phil Angelides's financial-crisis panel grilled Goldman executives this week over whether they undervalued AIG's mortgage assets in order to strengthen their own position. The bank, having bet against them, repeatedly valued the securities lower than rivals and demanded money from AIG, which was insuring them. These (often rapid) reductions in assessed value weakened AIG as other banks used the valuations and followed suit, asking for collateral. From the Journal:

Phil Angelides, the commission's chairman, said this week that Goldman "built the bomb" by developing complex mortgage securities and "built a bomb shelter" by betting against the mortgage market in 2007. "The question is, did they light the fuse" by lowering the value of mortgage securities, he said.

AIG exec Andrew Forster said that the insurance giant thought Goldman was screwing them, but had no internal valuation system to counter the bank's assessment. Still, Forster, like anybody suffering from Stockholm Syndrome, still has echoes of identity with his captors: "It would have been prudent to have hedged!" he squeaked.

Goldman Defends Valuations That Helped Put AIG In Bind [WSJ]