Is AIG Exec Joe Cassano Right to Feel Unrepentant?

In brazen testimony, Cassano claims the insurance giant's assets weren't toxic

Joseph Cassano, the former head of AIG's disastrous derivatives unit, testified before the Financial Crisis Inquiry Commission Wednesday. Cassano's division was responsible for the risky mortgage trades that ended up unraveling the company and prompting a $182 billion federal bailout. To a number of lawmakers and journalists, he's been considered one of the chief villains of the U.S. financial collapse.

Many were anticipating his testimony because, for almost a year, he has disappeared from the headlines. Was Cassano repentant? Not one bit, the WSJ reports:

In one of the most defiant statements by any Wall Street executive in the thick of the financial crisis, Mr. Cassano told a Congressional panel that he didn't misjudge the risks of subprime mortgage deals his unit entered into when he was its CEO, from 2002 until early 2008.

AIG's problems, he said, were brought on by a liquidity crisis when credit markets seized up— and weren't a result of lax underwriting practices or defaults among mortgage assets his unit had insured. 

So is Cassano delusional? Finance writers are split:

• Evidence Suggests He's Right, writes Michael Corkery at The Wall Street Journal: "Cassano maintains he did nothing wrong, and the recent decision by federal prosecutors to drop their probe against him seems to bolster his case."

• Whatever He Is, He's Certainly Cocksure, writes Nancy Miller at True/Slant:

Cassano is no Warren Buffett; he did not aw-shucks his interrogators with “who could have known?” type of assertions. Cassano is a man quite sure of himself and his analytics. The WSJ blog reports, quite incredulously: “Cassano won’t even go as far to say he was wrong about the housing market. Most everybody was wrong about how far the housing market would fall.”

The guy has serious cajones. First he sells insurance contracts on $78 billion of mortgages. No hedges. Just one caveat: The buyer can issue margin calls at will.

• Someone Should Be Able to Prove Him Wrong, writes Felix Salmon at Reuters:

This is something which should be able to be cleared up empirically quite easily, no? How many of the super-senior CDO tranches that AIG FP insured have ended up defaulting by now?

More generally, of course, the question is moot because AIG simply didn’t have the liquidity to survive as a going concern after putting up all the collateral which its insurance contracts required it to post during the crisis. It’s not enough that your credit default swap ends up suffering no losses in the end; you also have to be able to survive until the end. And no one, least of all Cassano, seemed to worry about that.