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Goldman Sachs officials insisted demands for billions of dollars from insurer ÌìÃÀÍøÕ¾´«Ã½´«Ã½ ahead of a $182-billion government rescue package were based on legitimate market prices and denied gaming values for a massive payout.

Members of the Financial Crisis Inquiry Commission peppered Goldman witnesses with questions on Thursday about their aggressive demands for collateral from ÌìÃÀÍøÕ¾´«Ã½´«Ã½ and why the market values triggering those demands were often lower than others.

The debate revives questions about the accuracy of mark-to-market accounting during the financial crisis and whether Goldman got a backdoor bailout from taxpayer support for American International Group.

“We never instruct people to mark these down,” Goldman Chief Financial Officer David Viniar told the panel on its second day of looking into the role of derivatives in the financial crisis.

Viniar also denied Goldman got a benefit from the ÌìÃÀÍøÕ¾´«Ã½´«Ã½ bailout, saying it was on the hook for the money on behalf of its clients.

Goldman was among U.S. and European banks that had purchased credit default protection from ÌìÃÀÍøÕ¾´«Ã½´«Ã½ and were quickly made completely whole after the U.S. government bailed out ÌìÃÀÍøÕ¾´«Ã½´«Ã½, beginning in September of 2008.

The insurance known as credit default swaps (CDS) hinged on pools of collateralized debt obligations (CDOs) that included subprime mortgages. As mortgage values fell in 2007, purchasers of the CDS began calling on ÌìÃÀÍøÕ¾´«Ã½´«Ã½ for collateral payments.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ official Elias Habayeb told the panel that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ tried to negotiate with Goldman and other counterparties to lower their demands, but with little success.

“Unfortunately ÌìÃÀÍøÕ¾´«Ã½´«Ã½ had little negotiating leverage,” said Habayeb. Even if ÌìÃÀÍøÕ¾´«Ã½´«Ã½ went bankrupt the counterparties would get special protection under bankruptcy law.

By March 2009, Goldman had received $12.9 billion of the $93 billion in money paid to ÌìÃÀÍøÕ¾´«Ã½´«Ã½ counterparties, the most of any bank.

The U.S. government’s decision to pay ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s counterparties in full has been criticized by lawmakers and bailout watchdogs.

Joseph Cassano, the former head of ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s Financial Products Division, told the crisis panel on Wednesday he could have saved taxpayers money if allowed to stay on and negotiate. Instead he was edged out of his executive position in February 2008.

Even if the government was overly generous, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ shareholders seem to have little legal recourse because the government had ÌìÃÀÍøÕ¾´«Ã½´«Ã½ sign a waiver, forfeiting its right to sue, according to documents released by the House Committee on Oversight and Government Reform back in May.

Crisis panel chairman Phil Angelides, as he did Wednesday, wondered if Goldman was deliberately driving prices down on the debt securities linked to the credit insurance sold by ÌìÃÀÍøÕ¾´«Ã½´«Ã½.

Viniar and other Goldman officials insisted they based their collateral demands on actual trades — trades the panel has asked for further details on.

“We don’t believe you can’t mark things to market. If you can’t mark things to market, you can’t manage your risk,” Viniar said.

But Angelides wondered how one could get a fair price in an illiquid market.

“Telling someone you have the right to buy this… in an illiquid market ain’t much of an offer,” he quipped.

The congressionally appointed panel is examining the ÌìÃÀÍøÕ¾´«Ã½´«Ã½ collateral dispute as part of its larger investigation of the roots of the financial crisis that peaked in 2008, sending global markets reeling and U.S. unemployment skyrocketing.

The panel is due to deliver its findings by Dec. 15 but it is not expected to contain detailed reform recommendations.

(Reporting by Karey Wutkowski, Steve Eder, Kim Dixon and Rachelle Younglai; Editing by Tim Dobbyn)

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