The Federal Reserve Bank of New York didn’t even try to get a good deal for taxpayers when it caved to demands from AIG’s creditors that they should be paid in full.
The new report from TARP inspector general Neil Barofsky explains how the New York Fed, then headed by current Treasury Secretary Tim Geithner, essentially agreed that AIG’s creditors should be paid 100 cents on the dollar.
From the Washington Post:
Treasury Secretary Timothy F. Geithner, who was then the president of the New York Fed, concurred with advisers that it would be impractical to impose losses on AIG’s counterparties and that they essentially should be paid at 100 cents on the dollar, the report by special inspector general Neil Barofsky states.
Barofsky said he undertook the report after 27 members of Congress asked him to review the basis for the payments and whether they were made in the best interest of taxpayers. The issue has caused consternation among lawmakers, who have repeatedly questioned why such vast amounts of money flowed with little transparency and without condition to AIG’s creditors, which included some of the world’s largest financial firms.
Barofsky said the Fed’s decisions in bailing out AIG “came with a cost — they led directly to a negotiating strategy with the counterparties that even then-New York Fed President Geithner acknowledged had little likelihood of success.”