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Us Politicians Amazed As Ex-Aig Boss Martin Sullivan Pleads Ignorance

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The British-born former AIG chief executive Martin Sullivan drew derision from US politicians by admitting he knew virtually nothing about the insurance company's vast exposure to complex financial insurance products until the credit crunch sparked early signs of a meltdown at the near bankrupt firm.

A US inquiry panel investigating the financial crisis quizzed Sullivan and several fellow former AIG bosses including Joseph Cassano, who ran the firm's financial products arm in London, about the collapse of AIG in 2008 that culminated in a government bailout costing $182bn. Its problems have been pinned on ill-fated derivatives contracts of more than $1tn.

There was little in the way of apology from the executives. Sullivan, a lifelong AIG employee who was once lauded as Britain's most influential businessman in the US, delivered a shoulder-shrugging performance in which he said he was unaware of crucial contractual terms in AIG's financial products until the middle of 2007, when Goldman Sachs began making multibillion dollar collateral calls on the firm. "I only became aware of the CDS [credit default swap] portfolio in 2007," said Sullivan. "I was receiving reports, but they didn't indicate any problems with the portfolio."

AIG has been described by critics as a large, stable insurance firm dwarfed by a huge "hedge fund" in the shape of its financial products division. The unit, run out of an office in Mayfair, wrote contracts insuring financial institutions against default by counterparties. AIG was plunged into chaos when banks began making billions of dollars of collateral calls. The first of these calls came in July 2007, when Goldman Sachs asked for $1.8bn. Sullivan, who was then the boss of AIG, admitted he did not know about Goldman's demand until after the event. "It was weeks or months later," said Sullivan, asked when he became aware of the problem. "It was nowhere near around July time – I think it was much later on in the year."

This was greeted with amazement by Bill Thomas, vice-chairman of the US financial crisis inquiry commission, who said: "I will admit I've never been involved in an enormous multinational operation [but] there's not much communication in what I'd have thought was a major problem in a significant sector of the business."

This guy's worth the money he was paid.

I suppose as long as the big profits rolled in the bonus came and it was better not to ask too many questions over how the profit was actually gained and what risks where being taken.

Perhaps they should have hedged their position back with GS?

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Executives of Goldman Sachs and the American International Group, the Wall Street titans whose long alliance dissolved into a battle that shook the financial world, defended their actions on Wednesday before the federal commission investigating the financial crisis.

But perhaps more revealing than the executives’ explanations was the release of 500 pages of documents by the panel, the Financial Crisis Inquiry Commission, showing how Goldman’s aggressive and repeated demands for billions in cash from A.I.G. drove the insurer to the brink of failure in September 2008.

The documents also revealed for the first time the dollar amounts behind Goldman’s negative bet on A.I.G., which Goldman put in place to hedge its risk that A.I.G. might fail and not pay its obligations.

“Goldman was first going in the door asking for collateral. Goldman was by far the most aggressive in terms of the timing and amount asked for,” Phil Angelides, the chairman of the commission, said. “You were way ahead of everyone else in terms of the amount being demanded and the timing for that.”

The collapse of A.I.G., once the world’s largest insurer, and its dealings with Goldman and other major banks in the months leading up to that failure, have been the subject of significant Congressional interest since it was bailed out by taxpayers in the fall of 2008.

Under the terms of the $182 billion rescue, which was overseen by the Federal Reserve Bank of New York and the Treasury, the banks that had insured mortgage securities with A.I.G. were made whole on those contracts when they agreed to unwind them. Some $46 billion of the A.I.G. bailout money went to those banks.

In his first public appearance since A.I.G.’s collapse, Joseph J. Cassano, the former chief executive of the unit that insured the mortgage securities, said that he had fought back against demands for cash from banks like Goldman until his retirement from A.I.G. in March 2008.

Nice to see the banks getting all their money back. How nice of the US taxpayer to fund it. Very generous of them.

This is the largest bank heist in history and it's being done right in front of everyone.

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Nice to see the banks getting all their money back. How nice of the US taxpayer to fund it. Very generous of them.

This is the largest bank heist in history and it's being done right in front of everyone.

Yes, it should be remembered that the AIG bail-out was for the benefit of the counter parties.

I wonder, with the benefit and hindsight, if the history books will be kind to Paulson, Bernanke, Bush et al for allowing this or whether they should have allowed AIG to fall.

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