This week, executives from Goldman Sachs (NYSE: GS) and AIG (NYSE: AIG) appeared before the Financial Crisis Inquiry Commission in hearings to try to determine what, if any, role the investment bank had in the insurer's collapse. Predictably, both sides had differing views on the matter. Surely Goldman is the culprit here -- they're too successful not to be. Think again; the facts tell a different story.

Goldman tops another list
You'll remember that Goldman was AIG's largest counterparty with regard to credit default swaps (CDS) and securities lending transactions (there were other large counterparties -- see table below). Goldman ultimately received $12.9 billion in payments from AIG, sparking a public uproar.

Payments and collateral postings with regard to CDS and securities lending agreements

Goldman Sachs (NYSE: GS)

$12.9 billion

Societe Generale

$11.9 billion

Deutsche Bank (NYSE: DB)

$11.8 billion

Barclays (NYSE: BCS)

$8.5 billion

Merrill Lynch (now part of Bank of America)

$6.8 billion

Bank of America (NYSE: BAC)

$5.2 billion


$5.0 billion

Source: AIG.

Now I fully expect to get comments to the effect that I am on Goldman's payroll, but I'm unapologetic in thinking that the main villains in this matter were AIG and the New York Federal Reserve, not Goldman Sachs.

These transactions were hedges
First, let's get one thing straight. Critics seem to believe these payments were pure profit that went directly to pay for summer homes in the Hamptons for Goldman employees; however, Goldman was transacting with AIG to hedge the risk from trades with other clients. Those counterparties would need to be paid, too.

Why push for less?
Another point of controversy is that the banks were repaid at full value, but I have seen no one argue that these contracts were not worth 100 cents on the dollar. Why expect Goldman or any other bank to push for anything less than full repayment?

Sure, it may have been entirely legitimate for the New York Fed -- who took over negotiations from AIG -- to try to negotiate a haircut on these payments. But it appears that they did not choose to follow this strategy.

The Fed's failed negotiations
According to a testimony by Goldman CEO Lloyd Blankfein before the same commission on January 13 of this year, the New York Fed contacted a Goldman employee and inquired whether the bank would accept less full value on its contracts with AIG. The employee responded that he was not sufficiently senior to make that decision. The New York Fed did not contact him again, nor did it contact Mr. Blankfein in regard to the matter.

Furthermore, the New York Fed was outmaneuvered by French banks and the French banking regulator into paying 100 cents on the dollar. The French contingent made an audacious argument, claiming that if bank executives accepted less than full payment, they could be held criminally liable in France. Once the New York Fed gave in to the French banks, they decided to treat all of AIG's counterparties in the same manner.

Your turn -- fire away
There are sound reasons to criticize Goldman Sachs, and I have done so in the past, but the AIG fiasco is not one of them. I'm sure many readers will disagree with me -- fire away in the comments box below.

Warren Buffett invested $5 billion in Goldman preferred shares at the height of the crisis, but he wishes he could buy these stocks instead.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.