Bloomberg on AIG as Banks’ Backdoor Bailout
Bloomberg has an important story today on the bailout of the banks through AIG.
Estimating that an essentially bankrupt company like AIG could have shaved 40 percent off what it owed big banks like Societe Generale and Goldman Sachs (an Audit funder), Bloomberg says the New York Fed’s decision to make its buddies whole (its then-chairman was a former Goldman chairman who would soon start re-loading up on its stock) cost taxpayers more than $13 billion.
In fact, Bloomberg reports that before it flopped into the government’s arms, one of AIG’s divisional chief financial officers had for months been negotiating with its counterparties to take huge haircuts on their credit-default swaps, insurance they bought on their junk assets called collateralized debt obligations.
So why’d the government not do the same—with its much greater leverage having rescued AIG from complete collapse?One reason par was paid was because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals, says a person close to the transaction. “Some of those banks needed 100 cents on the dollar or they risked failure,” Vickrey says....MORE