Goldman Improved Response to Crisis Panel, Made Chief Blankfein Available

Goldman Sachs Group Inc. made Chief Executive Officer Lloyd Blankfein available for an interview with the Financial Crisis Inquiry Commission and has been more responsive to information requests from the panel, the FCIC’s leaders said.

Blankfein, 55, was interviewed recently by FCIC staff “at length” as part of its probe into causes of the 2008 credit- market freeze, commission Chairman Phil Angelides said yesterday in a conference call with reporters. Angelides said on June 7 that the FCIC subpoenaed Goldman Sachs after the bank tried to hinder a probe by overwhelming the panel with documents.

“I have no question” that New York-based Goldman Sachs will now cooperate with requests, FCIC Vice Chairman Bill Thomas said on the call. “It was the lack of specificity, or even the acknowledgement that what we asked for was in the piles of documents we got, that was cleared up.”

Goldman Sachs executives including Chief Financial Officer David Viniar and President Gary Cohn will testify at a two-day FCIC hearing beginning today reviewing the role of derivatives in the recession. Also scheduled to testify is Joseph Cassano, 55, the former American International Group Inc. executive whose bets on subprime mortgages led the insurer to the brink of collapse in 2008, requiring a U.S. bailout.

“This hearing is focused on derivatives which is a subset, obviously, of what Goldman does, and if you want to get some answers that are useful and meaningful you’d probably ask the people who were head of that subset,” Thomas said, when asked about the choice of executives to appear before the panel.

AIG Chief Risk Officer Robert Lewis will also testify as will Martin Sullivan, who was ousted as the insurer’s CEO in 2008 after the company was overwhelmed by losses on real estate- related bets that he had projected would be “manageable.”

Dinallo, Gensler

Ex-New York Insurance Superintendent Eric Dinallo and Gary Gensler, chairman of the Commodity Futures Trading Commission, are also scheduled to appear. The FCIC tried to compel former Office of Thrift Supervision Director John Reich to testify, said Tucker Warren, a spokesman for the commission.

The subpoena wasn’t served to Reich because he is outside the U.S., Warren said. Attempts to reach Reich for comment weren’t immediately successful. The OTS is one of AIG’s regulators.

After AIG’s bailout, Goldman Sachs collected $12.9 billion tied to contracts with the New York-based insurer, including derivatives. AIG sold credit-default swaps to firms including Goldman Sachs, Societe Generale SA and Deutsche Bank AG protecting them against declines in the value of mortgages. When the housing market collapsed, AIG didn’t have enough funds to honor its contracts and turned to the U.S. for a rescue that swelled to $182.3 billion.

Joseph Cassano

Cassano, who oversaw an AIG unit managing $2 trillion in derivative trades, was interviewed for about five hours by FCIC staff. He had previously shied away from public statements while regulators investigated his role in the swaps trades, which he said in 2007 would be profitable.

“He was a person with extraordinary knowledge of the inner workings of that company and the relationships with others,” Angelides said.

The U.K. Serious Fraud Office said on May 26 that a review of the business Cassano oversaw didn’t turn up any criminal violations. U.S. prosecutors also won’t bring charges, a person familiar with the investigation said last month.

Goldman Sachs was sued in April by U.S. regulators for misleading clients who invested in collateralized debt obligations. The Securities and Exchange Commission said that investors weren’t told that the hedge fund led by John Paulson helped pick the mortgages in the CDOs and was betting on them to fail. Goldman Sachs has said the suit is unfounded.

Bear Stearns

Goldman Sachs, the highest-paying and most profitable firm in Wall Street history, has been criticized by lawmakers as a symbol of greed and excess. AIG and failed securities firm Bear Stearns Cos. are among companies hobbled by losses on investments from Goldman Sachs.

The commission is investigating the causes of the credit crisis, which followed the collapse of the housing market beginning in 2007 and sparked the worst recession since the 1930s and the loss of more than 8 million U.S. jobs. It will report its findings to Congress and President Barack Obama by December.

Derivatives such as credit-default swaps contributed to the crisis, making it difficult for regulators to understand how interconnected financial firms had become after the bankruptcy of Lehman Brothers Holdings Inc. in 2008.

To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.

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