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N.Y. Fed paid too much for AIG bailout
American International Group (AIG) offices in New York City.
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Bill Radke: A new report is out today on last year's rescue of AIG. The report says the Federal Reserve Bank of New York mishandled key parts of the negotiations. Here's Marketplace's Alisa Roth.
Alisa Roth: Here's a quick refresher on AIG: banks were buying up huge numbers of really complicated -- and risky -- financial instruments. AIG sold what were essentially insurance policies on those securities.
When it looked like AIG might fall apart, the government stepped in and started buying up those securities from the banks at full value. The new audit says they should have bargained with the banks to get a better deal.
Christopher Whalen is with Institutional Risk Analytics. He thinks so, too:
Christopher Whalen: You should have taken them out at the market, which would have been a discounted payment. They would have lost money, but they would have gotten something.
Among other things, he thinks it would've been better if the big banks like Goldman Sachs hadn't gotten such favorable treatment from the Fed.
For its part, the Fed disagrees with the report. It says there was no choice but to bail out AIG, and it paid as much as it had to to do that.
In New York, I'm Alisa Roth for Marketplace.
Whether the NY Fed paid too much for the banksâ?? debt depends on their objective in paying at all. If as, I believe, the objective in all these bailouts was to make the important unsecured creditors whole then they did not overpay. Alternatively, the nominal objective was to prevent financial meltdown (collapse, armageddon, the economy would have come to a halt, etc.). But in the absence of detailed facts and convincing argument the nominal objective has yet to rise above self-serving (and plutocrat serving) hyperbole. The fact that the Fed refuses to disclose the nature of â??assetsâ?? it has taken as collateral, who got how much and what they did with it is incompatible with a democracy. The Fed it seems has slipped the surly bounds of accountability. The Fed continues to supply Goldman Sachs and other financial corporations money at near zero percent. That money continues to fund a global asset price bubble not investment that can be expected to fuel sustainable economic growth. Over the last three decades economic policy has enhanced instability. A series of asset bubbles have replaced bull markets based on broad economic growth, leading to the oxymoron of â??jobless recoveriesâ??. Doesnâ??t all this say something about the governmentâ??s objectives in the bailout programs?
