Econintersect: The U.S. GAO (General Accountability Office) has issued a report that questions the Federal Reserve Bank of New York’s (NY Fed building pictured) handling of the 2008 bailout of American International Group. An article in today’s New York Times (Tuesday, November 1) reveals some of the details. At the heart of the matter is the contention that the Fed insisted on paying more to AIG creditors than the creditors were willing to settle for.From the NY Times:
The agency’s report revisits a controversial chapter in the history of the financial crisis: the government’s decision to sink tens of billions of dollars into A.I.G., the world’s largest insurance company, which was running out of money to cover its vast and losing bets on the health of the housing market. Much of that money was then paid to other companies to honor their outstanding contracts with A.I.G.
The basic conclusion echoes the findings of previous federal investigations. The rescue mission succeeded, but efforts to minimize the costs and risks borne by taxpayers were insufficient. But the new report also raises concerns about the explanations subsequently offered by New York Fed officials.
The conclusion of the GAO report contains words that are quite honey-coated, as is so often their posture:
The AIG crisis offers lessons that could improve ongoing regulation and responses to future crises.
Editor’s Note: GEI contributor Dr. Elliott Morss posted a sharp criticism of this action three years ago as it was happening on his blog – Morss Global Finance