More than $27bn simply handed over to the banks
Neil Barofsky, special inspector general for the US troubled asset relief programme (TARP), has reported that the New York Federal Reserve made "policy decisions" that let public money go to AIG's counterparties, the FT reports
The Fed’s decision, under its then boss and now Treasury Secretary Tim Geithner, let $27.1bn (€18.18bn, £16.25bn) of public money go to the likes of Société Générale and Goldman Sachs
The report reveals that a deal on the controversial collateralised debt obligations (CDS) was rebuffed by the French bank regulator and leading banks. Only UBS agreed to a cut of 2% and only if every other bank involved agreed to the same deal.
Barofsky’s report said the Fed "made several policy decisions that severely limited its ability to obtain concessions from counterparties", including refusing to use its leverage as bank regulator to pressure the companies or to tear up legal contracts.
Botched
The Guardian described the AIG bailout as “botched”.
It quotes the report saying: "The decision to acquire a controlling interest in one of the world's most complex and troubled corporations was done with almost no independent consideration of the terms of the transaction, or the impact those terms might have on the future of AIG.”
Barofsky says the banks received an amount "far above" the market value at the time for the CDS and that without the government bailout "they would likely have received far reduced payments as well as the indirect consequences of a systemic collapse".
Bloomberg said the Federal Reserve Bank of New York gave up efforts to save taxpayer money on AIG’s rescue. Representative Darrell Issa call the insurer’s rescue a “backdoor bailout” for finance firms.
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