Tuesday, November 17, 2009
As noted earlier, the Office of the Special Inspector General for TARP released its report on Factors Affecting Efforts to Limit Payments to AIG Counterparties (SIGTARP report on AIG). Here are its summary conclusions (note in particular the last sentence):
(1) the original terms of federal assistance to AIG, including the high interest rate it adopted from the private bank’s initial term sheet, inadequately addressed AIG’s long term liquidity concerns, thus requiring further Government support; (2) FRBNY’s negotiating strategy to pursue concessions from counterparties offered little opportunity for success, even in light of the willingness of one counterparty to agree to concessions; (3) the structure and effect of FRBNY’s assistance to AIG, both initially through loans to AIG, and through asset purchases in connection with Maiden Lane III effectively transferred tens of billions of dollars of cash from the Government to AIG’s counterparties, even though senior policy makers contend that assistance to AIG’s counterparties was not a relevant consideration in fashioning the assistance to AIG; and (4) while FRBNY may eventually be made whole on its
loan to Maiden Lane III, it is difficult to assess the true costs of the Federal
Reserve’s actions until there is more clarity as to AIG’s ability to repay all of its
assistance from the Government. SIGTARP also draws lessons that should be
learned regarding the importance of transparency and the enormous impact that ratings agencies had on the AIG bailout (emphasis added).