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SEPTEMBER : THE BAILOUT OF AIG 

Further undermining the OTS’s claim that it lacked authority over AIG Financial
Products are its own actions: the OTS did in fact examine the subsidiary, albeit much
too late to matter. OTS examiners argued they got little cooperation from Joseph
Cassano, the head of the subsidiary. Joseph Gonzales, the examiner in charge from
April  to November , told FCIC staff, “I overheard one employee saying that
Joe Cassano felt that [the OTS was] overreaching our scope by going into FP.” 
The OTS did not look carefully at the credit default swap portfolio guaranteed by
the parent company—even though AIG did describe the nature of its super-senior
portfolio in its annual reports at that time, including the dollar amount of total credit
default swaps that it had written. Gonzales said that the OTS did not know about the

CDS during the – period. After a limited review in July —conducted a
week before Goldman sent AIG Financial Products its first demand for collateral—
the OTS concluded that the risk in the CDS book was too small to be measured and

decided to put off a more detailed review until . The agency’s stated reason was
its limited time and staff resources. 
In February , AIG reported billions of dollars in losses and material weak-
nesses in the way it valued credit default swap positions. Yet the OTS did not initiate
an in-depth review of the credit default swaps until September —ten days before
AIG went to the Fed seeking a rescue—completing the review on October , more
than a month after AIG failed. It was, former OTS director of Conglomerate Opera-
tions Brad Waring admitted, “in hindsight, a bad choice.” 
Reich told the FCIC that before , AIG had not been a great concern. He also
acknowledged that the OTS had never fully understood the Financial Products unit,
and thus couldn’t regulate it. “At the simplest level, . . . an organization like OTS can-
not supervise AIG, GE, Merrill Lynch, and entities that have worldwide offices. . . . I
would be the first to say that for an organization like OTS to pretend that it has total
responsibility over AIG and all of its subsidiaries . . . it’s like a gnat on an elephant—
there’s no way.” Reich said that for the OTS to think it could regulate AIG was “totally
impractical and unrealistic. . . . I think we thought we could grow into that responsi-
bility. . . . But I think that was sort of pie in the sky dreaming.” 
Geithner agreed, and told Reich so bluntly. Reich told the FCIC about a phone call
from Geithner after the rescue. “About all I can remember is the foul language that I
heard on the other end of the line,” Reich said. He recalled Geithner telling him.
“‘You guys have handed me a bag of sh*t.’ I just listened.” 