Ex-AIG boss denies lax underwriting standards

A former top boss at American International Group acknowledged Wednesday that his division tripled the amount of risky investments it insured in the three years leading up to the 2008 financial meltdown.

But Joseph Cassano, ex-chief executive for AIG's key financial products division, rebuffed accusations from a U.S. congressional panel investigating the crisis that he relaxed standards in order to issue more credit default swaps.

"We never diluted our underwriting standards at any point in time," Cassano told the Financial Crisis Inquiry Commission in his first public testimony since the crisis that pushed AIG, one of the world's largest insurance companies, to the brink of collapse.

AIG received $182 billion US in bailout money from American taxpayers.

Much of the rescue money went to meet the company's obligations to its Wall Street trading partners on credit default swaps. The biggest beneficiary was investment bank Goldman Sachs, which received $12.9 billion.

The inquiry panel chairman, Phil Angelides, questioned how the insurer could triple the amount of swaps it issued, from $17 billion in 2005 to $78 billion in 2007, without compromising its standards.

Others from AIG as well as Goldman executives were also due to appear before the commission, a bipartisan panel created by Congress to examine issues surrounding the crisis.

The panel will also see the unusual sight of Goldman's president, Gary Cohn, stressing how much money it lost.

Did not bet against its clients

"We did not 'bet against our clients,'" Cohn said in his testimony prepared for the hearing. "During the two years of the financial crisis, Goldman Sachs lost $1.2 billion in its residential mortgage-related business."

The hearing will focus on the trading of exotic financial securities between the two giant companies leading up to the crisis and whether their use made the collapse worse.

Regulators feared that if AIG couldn't make good on its promise to pay off its obligations under those contracts, the consequences would pose a threat to the whole U.S. financial system.

Cassano left AIG in 2008 shortly after the $11-billion loss was reported.

Goldman Sachs profited from its bets against the housing market before the crisis, and continued to ring up huge profits after accepting federal bailout money and other government subsidies.