The New York Fed Wants You to Know All About AIG

Monday, August 01, 2011 , , 0 Comments

It's kind of funny that the NY Fed has an entire "This is what happened with AIG" area on its website. In my mind, it's akin to a serial rapist having a "here's why I'm a registered sex offender" tab on his profile.

On it, you'll find all kinds of overly complicated defenses explanations about the actions the NY Fed took to "save" AIG (read: the dumbass AIG counterparties who made shitty bets), but no mention of why the NY Fed deliberately chose to pay said counterparties 100 cents on the dollar for said shitty bets.

You will, however, see a whole laundry list of horrible things that could have happened had AIG been allowed to fail:

If AIG had been allowed to fail and the parent company had filed for bankruptcy, the consequences and effects could have been severe:

* Many of AIG’s insurance subsidiaries could have been seized by their state and foreign regulators, leaving policyholders facing uncertainty about their rights and claims.
* Seizure of AIG subsidiaries would likely have put a moratorium on claims and withdrawals, and could have impaired those claims in the longer term.
* A run on AIG, in the form of a massive cashing in of insurance policies and annuities, would have strained the company’s ability to meet its obligations to millions of policyholders.
* State and local government entities that had lent investment funds to AIG would have been exposed to losses in an already difficult and deteriorating municipal budget environment.
* Workers whose 401(k) plans had purchased guarantees in the form of stable-value contracts from AIG could have lost that insurance.
* Pension plans would have been forced to write down their AIG-related assets, resulting in significant losses in participants’ portfolios.
* The resulting losses to money market mutual funds, to which millions of Americans entrust their savings, would have had potentially devastating effects on confidence, and would have accelerated the run on various financial institutions.
* Global commercial banks and investment banks would have suffered losses on loans and lines of credit to AIG, and on derivatives contracts and other transactions, potentially causing even greater constraints on the availability of credit to homeowners and businesses.
* Confidence in other insurance providers could have been impacted, leading to a possible run on the industry.

Again, nowhere does it say that counterparties had to be paid 100 cents on the dollar (and yes, America, that was your 100 cents they got). Even the most anti-bailout among us can agree that a total collapse of AIG would have been a catastrophic event, is it really necessary to make such a huge deal over that fact on the face?

As of January 14, 2011, the New York Fed is no longer supplying AIG a lifeline and all NY Fed "loans" have been repaid. We will, of course, never see the tens (or is that hundreds?) of billions paid out to AIG counterparties both here and overseas in the middle of all this nonsense. Oh, and the press release fails to address the fact that the NY Fed actually just traded the responsibility with the U.S. Treasury, who ended up holding 92% of AIG common stock.

There is, again, no mention of that on this lovely little fluff site.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.