AIG Counterparties “Demanded” Full Value, and other perversions
Courtesy of Joshua M Brown, The Reformed Broker
I will never let this go ever. The fact that both insolvent investment banks and foreign banks had the ability and the audacity to "make demands" of the New York Fed when settling up their damaged AIG-written swap agreements still turns the stomach 15 months later.
Gretchen Morgenson and Louise Story have the scoop, emphasis is mine:
Regulators had to contend with major banks that were A.I.G.’s trading partners and were unwilling to accept a discount from the government when closing out the contracts the banks had struck with the insurance giant.
Ultimately, the government decided to make the banks whole on the contracts, a decision that the documents say was approved by Timothy F. Geithner, the Treasury secretary who, at the time, was president of the Federal Reserve Bank of New York.
The Fed’s decision to pay A.I.G.’s trading partners in full on tens of billions of dollars in contracts has been controversial because many analysts say they believe the government could have negotiated a price for a fraction of that amount, reducing taxpayer funds used in the rescue. Similar contracts were being settled at heavy discounts in other deals where the government was not involved.
The above is from a New York Times article up today about the hundreds of thousands of documents that were turned over to the House Committee on Oversight and Government Reform in preparation for next week’s bludgeoning.
If I were Tim Geithner, I would resign ahead of time. He either knowingly made these counterparties whole with an eye toward future employment at Goldman or he just plain got taken advantage of in the heat of the moment. Either way, its completely unacceptable.
Source:
A Rift at the Fed Over the Bailout of AIG (NYT)
