By Jordan Fabian - 06/30/10 06:02 PM EDT
Former AIG executive Joseph Cassano on Wednesday claimed the massive bailout of his company would have been smaller if he’d stayed in charge.
Cassano made the suggestion during an aggressive defense of his tenure at the failed insurance giant, which triggered the financial crisis when it imploded.
Cassano headed the company’s financial products unit that handled the credit default swaps (CDS), insurance-like products that led to the company’s downfall and a $182 billion taxpayer bailout when AIG couldn’t pay the claims made against it by other financial players.
But in written testimony to the Financial Crisis Inquiry Commission, Cassano said decisions made after his resignation led to the company’s problems.
Cassano, offering his first public comments in two years, said that after he resigned from the company in 2008, AIG unwound existing credit default swap (CDS) contracts, which he says caused major problems and instability.
“As you look at the performance of some of these same CDOs [collateralized debt obligations] in Maiden Lane III, I think there would have been few, if any, realized losses on the CDS contracts had they not been unwound in the bailout,” he wrote.
Maiden Lane is the name of the company that now holds the failed securities; It is managed by the New York Federal Reserve.
Cassano repeatedly said that if he was able to stay on at AIG, he would have been able to negotiate more favorable discounts on collateral calls on the credit default swaps during the crisis.
“I see that as the lynchpin in the issues we are talking about,” he said.
Former Sen. Bob Graham (D-Fla.), a commissioner on the panel, asked Cassano if he was able to remain at his job, if he could have prevented a taxpayer bailout of the company.
Cassano would not go that far.
“I don't want to say any money, but I think I would have negotiated a much better deal for the taxpayer than [the $182 billion bailout],” he said.
Cassano said the company behaved prudently in deciding to halt issuing CDS contracts, insurance-like instruments it had issued to other large financial institutions.
The comments from Cassano, who was heavily criticized in the aftermath of the crisis, provoked tough questions from commissioners on the body set up by President Barack Obama and Congress.
Commissioners argued that AIG exposed itself to too much risk by rapidly expanding its CDS trading, which eventually led to a liquidity crisis once the underlying mortgage loans lost value during the housing crisis.
But Cassano said the company did its due diligence.
“We never diluted our underwriting standards at any point in time,” he said. “It's important to recognize that we did make the tough decision to exit the business in 2005.”
This story was updated at 2:46 p.m.