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existing residential mortgage-backed securities, S&P said that previously issued securities were “already subject to surveillance based on an analysis that incorporates more applicable information regarding the actual performance of the collateral” than the new methodology would offer. In response to the Koch and Gutierrez e-mail, S&P said that it was publishing studies showing that even a more severe housing downturn would still result in triple-A securities maintaining their ratings, and that neither Koch nor Gutierrez had been involved in the rating process. When asked to comment about the meeting with Terry McGraw, S&P said that it “made changes to its surveillance practices multiple times in late 2006 and 2007.”

17

A chart later prepared by the Senate Permanent Subcommittee on Investigations showed that 91 percent of the triple-A-rated subprime residential mortgage-backed securities issued in 2007, and 93 percent of those issued in 2006, were subsequently downgraded to junk status.

18

Although Kim hired a staff, his hedge fund never got off the ground because he was unable to raise any money. According to a lawsuit filed by Michael Pasternak, who claims to have turned down a $2 million yearly salary at Morgan Stanley to work for him, Kim told prospective hires that he had investors lined up to sink more than $2 billion into the fund. Indeed, Kim walked out of Merrill believing he had a $4 billion commitment from his old firm and several billion from other prospective investors. But as the market worsened, all of Kim’s investors decided against investing. In August 2008, just a month before Lehman weekend, Kim shut down the fund, which he had been funding out of his own pocket.

19

Three months later, Merrill wrote down an additional $11 billion in subprime securities. In all, of the approximately $45 billion or so that Semerci and Lattanzio had added to Merrill’s books in the year after Kronthal left, a staggering $42 billion would wind up being written off.

20

Around this same time, according to Institutional Investor magazine, Goldman’s insurance analyst, Tom Cholnoky, issued an unusually tough-minded report entitled “Don’t Buy AIG.” Cholnoky’s rationale, the magazine reported, was the likelihood of “further rating agency downgrades and capital-raising activities that would dilute shareholders.”

21

Cassano’s lawyers deny that he did anything wrong in his handling of the collateral calls. “Mr. Cassano followed appropriate procedures in a timely manner to report to his boss and outside auditors on the first collateral call by Goldman Sachs in early August 2007,” they wrote in an e-mail. “Indeed, the information provided by Mr. Cassano was circulated through appropriate channels to AIG’s CFO by mid-August.” In addition, they deny that Mr. Cassano “had not prepared his company for the collateral calls—indeed, during Mr. Cassano’s tenure, he had the tools to resist and reduce the collateral calls based on fundamental analysis and contractual defenses. This is why, during Mr. Cassano’s tenure, the company had more than sufficient liquidity to meet collateral demands.” They point out that after a lengthy investigation the Justice Department decided not to bring charges against Mr. Cassano.

22

This view would gain great currency during the various investigations that took place in the wake of the financial crisis. Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, would later question whether Goldman was acting like a “cheetah chasing down a weak member of the herd.”

23

Paulson fought the increase because he didn’t see why the GSEs were needed to support the high-end housing market, and he told a group of Senate Republicans that he would hold firm. But it was a losing battle; raising the limits was popular with members of Congress on both sides of the aisle. In a meeting with Pelosi and Boehner, Pelosi told Paulson they were going to raise the limits. She said it in a way that suggested he would be unable to stop her. The she laughingly showed him a note that Boehner had slipped her. “Let