This ought to be big enough, right?
That AIG bailout just keeps coming back to haunt, well, everybody, but lately it’s taking down the folks who engineered it in the first place.
A government audit released earlier this week shows the NY Fed caved in to demands by AIG creditors that they be paid in full for complex and risky securities they insured with AIG. WSJ has the details:
The audit, which was conducted by the special inspector general for the Troubled Asset Relief Program, faulted the New York Fed for not using its leverage as the regulator of some of these banks to get them to accept lower prices for more than $60 billion in credit-market bets, which were tied to souring mortgage-linked securities that had fallen in value.
The banks that were paid off in full included Goldman Sachs Group Inc., Merrill Lynch and large French banks Société Générale and Calyon, the investment bank unit of Credit Agricole Group, which were represented by the French bank regulator in negotiations with the New York Fed last November, the report said.
Not surprisingly, outrage has followed the report.
“There was absolutely no reason to pay 100%,” on the dollar, Yves Smith writes at naked capitalism.
“It’s simply embarrassing and pathetic,” Barry Ritholtz notes at The Big Picture.
The fact that government officials essentially asked bankers to take a haircut on risky CDOs, bankers refused, and that was that, is wrong on many accounts, Paul Krugman says at Conscience of a Liberal.
Any type of discount might not have been much, but it would’ve had “symbolic importance,” which definitely matters, he says.
“Bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts,” Krugman notes. “By itself, the AIG story would be damaging enough. But it’s part of a pattern – and that pattern has ended up underining the economy’s prospects, big time.”
Reuters blogger Felix Salmon is on the same page, claiming another unintended consequence from the AIG bailout is the prospect for a second stimulus package.
He criticizes the Obama administration for not doing a better job of separating the financial-sector bailouts and the stimulus package.
“If the general public starts conflating the two, there’s no chance of any more stimulus, no matter how needed it might be,” Salmon says.
