AIG waived right to sue big banks?
Share Now on:
TEXT OF INTERVIEW
Kai Ryssdal: The talk on Capitol Hill today — other than that small matter of Supreme Court nominee Elena Kagan — was AIG and how it went so wrong, so fast and took so much taxpayer money with it. The Financial Crisis Inquiry Commission is trying to sort things out. Who did what to whom. That’s the subject of a big article in the New York Times today written by Louise Story. Good to have you with us.
Louise Story: Good to be here.
Ryssdal: Before we get to the essence of your piece, there is a little bit of background about AIG and the bailout we need to make people familiar with. Give us the 30-second version of that.
Story: AIG, that giant insurance company wrote a number of large multi-billion dollar contracts to banks tied to mortgage securities. When the mortgage market melted down, AIG was bailed out by the government. A lot of the money in the bailout then went to the banks. So it’s been a very controversial bailout.
Ryssdal: And speaking of controversy, that’s kind of the nub of your piece today in the paper that as part of this entire arrangement with Goldman Sachs and the government and the Federal Reserve Bank of New York, AIG gave up its right to sue over any of these assets that it was insuring, right?
Story: That’s right. You know, you thought that you knew everything about this bailout, because there’s been so much coverage but my colleague, Gretchen Morgenson, went through 250,000 pages of documents, and what we found was this legal waiver that no one has talked about in which AIG waived its right to sue on most of those mortgage bonds that the banks had to underwrite. The reason this is important, of course, is because this spring, the FCC filed a suit against Goldman Sachs involving a mortgage security that’s similar to a lot of the ones that AIG insured. So you’ve got a lot of AIG executives and shareholders and people out there wondering if AIG might be able to sue, and this waiver that was done very secretively does hurt that possibility.
Ryssdal: So one has to ask why in the world would AIG agree to this waiver?
Story: Well, AIG was really a beggar at that time. They needed the bailout. They were in a liquidity crisis. And if they wanted the money from the Fed and the Treasury, they essentially had to do what the Fed and the Treasury wanted them to do and this was language that was put in the Fed documents related to the bailout.
Ryssdal: It’s worth pointing out, that the banks, Goldman Sachs in particular, were paid back 100 cents on the dollar, were paid back in full for these deals that AIG had with them, thanks to the government bailout.
Story: That’s right, and at the time some Fed governors in private e-mails wrote that they felt like they were giving the banks a gift. The banks were paid 100 cents on the dollar. So not only did they get this legal waiver, they got full value on these deals from the government. It’s hard to know what was on the mind of the Fed. They would not comment. But certainly there are people, including the Congressional Research Service, who have said this was really a bailout of the banks, not AIG.
Ryssdal: Where does it go from here then. If AIG can’t sue over these mortgage bank securities that became toxic assets, what happens to the bailout?
Story: There are about $14 billion of securities out of the $76 billion or so that AIG still could sue on, or maybe they’ll just pay the taxpayer back through their earnings. It’s not clear yet whether the taxpayer will recover all of this money from AIG or not.
Ryssdal: Louise Story from the New York Times. She writes today about AIG and the bailout. Louise, thanks very much.
Story: Thank you.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.