NY Fed & AIG Bail-Out

The NY Times features an interesting piece by Mary Williams Walsh, writing on a report from the office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) on the AIG bail-out:


The Federal Reserve Bank of New York gave up much of its power in high-pressure negotiations with the American International Group’s trading partners last year, according to a government report made public on Monday.

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The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.

There have been suggestions that the Fed chose to negotiate weakly, Mr. Barofsky said, to give a “backdoor bailout” to A.I.G.’s banks. He said Mr. Geithner and the Fed’s lawyers had denied this, but added that “irrespective of their stated intent,” there was no doubt about the result: “Tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.”