Nobody knows more about bad deals than Joseph Cassano, the head of the disastrous AIG Financial Products division. I wanted to loop back to his testimony before the Financial Crisis Inquiry Commission, because he made a statement about some other bad deals about which he had some intimate knowledge:

AIG’s former derivatives chief said Wednesday that taxpayers overpaid Wall Street for their AIG-related holdings, telling a federal investigative panel that he could have gotten “a much better deal” than the Federal Reserve Bank of New York.

Joseph Cassano, the chief executive of AIG Financial Products from 2002 to 2008, told the Financial Crisis Inquiry Commission that the New York Fed’s rapid move to settle claims by counterparties to AIG’s derivatives deals at 100 cents on the dollar “made me scratch my head.”

“We had contractual rights,” Cassano said, explaining that the once AAA-rated insurer could have fought Wall Street counterparties like Goldman Sachs, which were using their contracts to exact concessions.

“I don’t understand why people didn’t look at the contracts,” Cassano said. “I don’t think taxpayers would have had to accelerate a $40 billion payment” to settle those claims.

You remember that the deal to pay off the counter-parties at par was rushed through very quickly and signed off by not only the NY Fed, but the Treasury Department and the Federal Reserve, at least at some level. Only Tim Geithner, the head of the NY Fed at the time, defends that deal now. To believe him, you have to subscribe to the theory that the regulators and the government were in a weak position relative to the banks at a time when the entire financial system neared collapse. Even Cassano, who was up to his eyeballs in that deal, can’t understand the 100% payout.

Cassano claims that he could have negotiated the discounts personally, as he had done while in charge of AIGFP. Now, he’s not the most reliable narrator, but he’s merely talking common sense – there was no reason to pay off the counter-parties so generously, when the alternative for them would have been nothing.

Andrew Williams, a Treasury Department spokesman who was with Geithner at the NY Fed, had this to say:

“Two years after the financial conflagration began, every amateur firefighter has a theory about how it might have been done differently, but ideas from those who lit the kindling aren’t particularly disinterested or useful,” Williams wrote in an e-mail.

“Cassano did acknowledge that Treasury and the taxpayers (and not AIG) now stand to benefit from the significant upside in the ML III portfolios — even if he disagreed with the decision to take those assets out of AIG’s hands,” Williams added, referencing the New York Fed-created investment vehicle that purchased the underlying securities from AIG’s counterparties at full value and continues to manage those investments today. Officials from Treasury and the New York Fed claim taxpayers will be made whole on the AIG bailout, and may even turn a profit.

This is an interesting defense coming today, when it was revealed that Ben Bernanke and Tim Geithner hid from Congress the extent of the junk bonds in the original Maiden Lane portfolio (although $172 million in junk bonds out of a $28.8 billion portfolio is actually better than I would have expected).

They can justify and rationalize, but clearly, the AIG deal sucked for taxpayers, and Tim Geithner anf the NY Fed were responsible for significant taxpayer losses that went to the banks.

More on Cassano’s testimony here.