GOLDMAN Sachs has defended its controversial trades with insurer AIG during the financial crisis.
In a nine-page submission to the Financial Crisis Inquiry Commission (FCIC) investigating the root causes of the crisis, Goldman said it priced collateral on the best available market information at the time.
Critics of the bank say it deliberately discounted prices to push markets lower because it had bet on a decline in the value of subprime mortgage-backed debt.
However, Goldman insists it made price calls that reflected the deteriorating conditions in the market for underlying collateral.
Goldman said: “The foundation of our approach to risk management is based upon disciplined market-to-market accounting.”
Goldman said that the securities AIG had insured, known as collateralised-debt obligations, or CDOs, rarely traded, so Goldman instead used prices from trades in other CDOs to “help inform” its valuations on the AIG deals. The bank prepared the document following comments made during its earlier appearance before the FCIC. At that appearance, the FCIC questioned its methods and asked why Goldman’s prices were often much lower than those from other banks.