Goldman Sachs Group Inc. executives defended valuations for credit default swaps that were presented to American International Group Inc. during the financial crisis, saying they reflected actual market prices.

That sparring between the two firms, which dated to 2007, moved into the public eye Thursday as the Financial Crisis Inquiry Commission asked executives to describe a collateral dispute about AIG's swaps that took place in the year before AIG collapsed in 2008. The U.S. government ultimately bailed out the insurance firm.

More broadly, the panel is seeking answers about the role that derivative products played in the financial meltdown.

Goldman Managing Director David Lehman said Goldman and AIG were in discussions starting in July 2007 over how much collateral AIG would be required to post after the market value of its credit default swaps declined.

Commission Chairman Phil Angelides said Goldman was "consistently low" in an illiquid market compared with other financial entities that were providing pricing information. "The pricing we were providing to AIG and other clients at this time was … consistent with where we viewed the market," Lehman said.

"We're pretty passionate about fair value accounting. We believe we're not smarter than the market," said Goldman's chief financial officer, David Viniar.

AIG did not think Goldman's valuations were reasonable, but "we didn't have an internal pricing system at that time" to counter their estimates, said Andrew Forster, AIG's former executive vice president of financial products. Forster currently supervises the asset desk at AIG's financial products division.

Angelides quoted an e-mail between Forster and another AIG executive citing rumors that Goldman was "aggressively marking down asset types they don't own so as to exact maximum pain to their competitors."

"We had heard from other dealers that Goldman Sachs pricing was very aggressively marked down in many different products," Forster said at the hearing.

AIG questioned Goldman's lower pricing in 2007, but Goldman stood its ground, Lehman said. "Our marks were based on actionable prices, informed by market information from comparable transactions," he said.

Elias Habayeb, AIG's former chief financial officer of the financial services division, acknowledged AIG tried to alleviate some of the calls for more collateral as the market value of its swaps was plummeting. But AIG did not have the liquidity to provide it, he said. AIG's efforts to ease the collateral demands on it were largely unsuccessful, Habayeb said.

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