AIG rescue too dear, says inspector
By Daniel Wagner |
November 18, 2009, Wednesday
|
Print Edition
Print Edition
OFFICIALS managing the multibillion-dollar bailout of insurance giant American International Group Inc bungled the first rescue and may have overpaid other banks to wind down AIG's business ties, according to a government watchdog.
The Federal Reserve Bank of New York - headed at the time by now Treasury Secretary Timothy Geithner - paid AIG's business partners face value for securities so they would cancel insurance-like contracts AIG had written and ease the firm's liquidity crunch.
But at least one of those partner banks would have canceled the contracts for less, according to a report yesterday from Neil Barofsky, the Special Inspector General for the US$700 billion financial bailout Congress approved last October.
The report said New York Fed officials mismanaged the talks with other banks, removing the threat that AIG would go bankrupt and bowing to a demand from French regulators that French banks holding AIG's debt insurance be paid in full.
The initial bailout "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," the report said.
As a result, billions of dollars more than necessary went to United States and European banks, it said.
Barofsky also faulted the Federal Reserve for refusing at first to reveal which banks had received billions of American taxpayer dollars supposedly intended to save AIG.
In its written response, the Treasury Department emphasized that the events "developed extremely quickly" and officials did not intend to provide further assistance to AIG after an initial US$85 billion bailout that the report said tied their hands.
AIG's bailout package eventually totaled more than US$180 billion.
"This report overlooks the central lesson learned from the AIG rescue," Treasury spokeswoman Meg Reilly said in a statement. "The lesson is that the federal government needs better tools to deal with the impending failure of a large institution."
The Federal Reserve Bank of New York - headed at the time by now Treasury Secretary Timothy Geithner - paid AIG's business partners face value for securities so they would cancel insurance-like contracts AIG had written and ease the firm's liquidity crunch.
But at least one of those partner banks would have canceled the contracts for less, according to a report yesterday from Neil Barofsky, the Special Inspector General for the US$700 billion financial bailout Congress approved last October.
The report said New York Fed officials mismanaged the talks with other banks, removing the threat that AIG would go bankrupt and bowing to a demand from French regulators that French banks holding AIG's debt insurance be paid in full.
The initial bailout "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," the report said.
As a result, billions of dollars more than necessary went to United States and European banks, it said.
Barofsky also faulted the Federal Reserve for refusing at first to reveal which banks had received billions of American taxpayer dollars supposedly intended to save AIG.
In its written response, the Treasury Department emphasized that the events "developed extremely quickly" and officials did not intend to provide further assistance to AIG after an initial US$85 billion bailout that the report said tied their hands.
AIG's bailout package eventually totaled more than US$180 billion.
"This report overlooks the central lesson learned from the AIG rescue," Treasury spokeswoman Meg Reilly said in a statement. "The lesson is that the federal government needs better tools to deal with the impending failure of a large institution."
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