Why the Fed Didn't Try Harder on AIG
The article also includes fascinating terms like "backdoor bailout" and "misuse of assets", btw.
The Federal Reserve Bank of New York paid French banks 100 cents on the dollar to settle trades with American International Group Inc. in November 2008, the same month an AIG competitor negotiated payments of less than a third of that to retire similar bets.
The decision to pay in full came after France’s bank regulator insisted that Societe Generale SA and Credit Agricole SA’s Calyon unit would be violating French law if they accepted less than they were owed, the New York Fed told a special inspector general. The Fed, which had rescued the insurer two months earlier after the collapse of Lehman Brothers Holdings Inc., paid face value to all 16 of AIG’s counterparties, including Goldman Sachs Group Inc., a move that may have cost U.S. taxpayers as much as $43.5 billion.
French law didn’t stop Societe Generale and BNP Paribas SA from taking $1 billion to settle $3.5 billion of trades the same month with New York-based bond insurer Ambac Financial Group Inc., according to three people familiar with the matter. Ambac’s ability to negotiate a discount while the central bank of the world’s biggest economy didn’t adds another question for lawmakers as they examine the most contentious transaction of the government’s bailout of the U.S. banking system.
“The Fed could have tried a little harder to get the French banks to take less than 100 cents on the dollar,” said U.S. Representative Brad Miller, a North Carolina Democrat on the House Financial Services Committee, in an interview. “This creates the impression among the American people that the purpose was not to protect taxpayers or the economy but to protect the counterparty financial institutions.”
Well it is obvious what happened here, isn't it? The Fed didn't try because it didn't want to. One must evaluate what could have driven them to take over on AIG and arrange a 100% counterparty bailout. To determine that, it might be useful to look at who benefited from such an arrangement. Was it the taxpayer who was doing the bailing out? FAIL, try again. Was it Goldman Sachs who got $13 billion in taxpayer money? You're getting warmer, don't forget to peg the funny-looking elf asshat with the tax problem who arranged the whole thing.