Comments on: Understanding the AIG decision A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: schooner Wed, 18 Nov 2009 17:38:14 +0000 They have had no actual “legal authority” to force the haircut or maybe they did, it’s irrelevant.

They had plenty of leverage in any negotiations and they pissed it away. How hard would it have been to say “If you don’t want to take a haircut, you’re on your own and good luck with getting anything since you’ll have to wait in line with the rest”

By: whatever Wed, 18 Nov 2009 16:09:26 +0000 the fed had no legal authority to force a haircut …

just a matter of interpretation. what legal authority did the fed have to take over AIG in the first place?

By: frankl Wed, 18 Nov 2009 14:53:02 +0000 the issue at the time that often goes overlooked is that MorgStan and GS were in midst of a run on their commmon equity in the stockmarket (which is why ML dealt themselves to BoA) and the TreasuryFed was attempting to allay some of that via the AIG mess (ie. payments from AIG to MorgSgtan,GS and others was then available for them for *funding* themselves which was key aspect)

another point – repayment of TARP funding may end that particular discrete part of the bailouts, but GS (and many others) still has/have large amts of usa-govt-guaranteed debt outstanding that they issued in late 2008 and in 2009 – i submit that until they retire *ALL* of that, they are still receiving massive subsidy from the usa govt, and therefore the latter can indeed intrude on a whole host of issues that were previously NOT in their bailiwick

just sayin’

By: Economics of Contempt Wed, 18 Nov 2009 05:31:02 +0000 TED,

OK, I suppose I was nitpicking. Sorry about that.

But I still don’t understand how you can seriously argue that the NY Fed breached some broad fiduciary duty to taxpayers because they didn’t persuade 8 large financial institutions to do something that they were under no obligation to do, and that the NY Fed had no legal authority to force them to do. (And I’d note that your speech, convincing though it was, was predicated on the French regulators being on board, which they were not.)

It’s one thing to argue that the NY Fed could have gotten the counterparties to agree to haircuts (anything is possible, I suppose), but it’s another to argue that the NY Fed breached it’s fiduciary duty because it didn’t get the counterparties to agree to haircuts.

This might be something we’ll have to agree to disagree on, because I just don’t see it.

By: jian Wed, 18 Nov 2009 03:25:56 +0000 Let me also add, this whole AIG raw deal thing was no news at all! NPR’s Fresh Air (to my best recollection) did an excellent interview of some economist with a British accent (sorry forgot his name) only weeks (or was it days?) after that dreadful rescue, and the economist complained loudly that how come the gov didn’t demand a haircut? Obviously, he was, sadly, the only one who cared that tax payers got a rotten deal (and Terry Gross and her listeners).

Interestingly, he (the economist) went on to say he hoped the gov would find its balls with time and would NOT let the big banks pay back TARP money early, because when they did it would mean they would escape gov oversight on bonus payout and other matters. How silly of him (and of me to hold my breath)! Of course the government chickened out, again, and let Goldman and Co. pay back TARP, and went out to dole out billions in bonus. It was even trumpeted as a triumph for taxpayers back then!

So that’s the 2nd time in a roll (as far as I was counting) that Treasury played no ball. Can we honestly continue to trust Geithner and his likes to act assertively on OUR behalf?? Don’t hold your breath like I did, or you’d turn blue!!!

How can someone like that not be replaced? We need and we DEMAND someone who has taxpayers’ interests at heart, who remembers what fairness means, who does not think of Wall Street bankers as masters of the universe, and who has the courage to stand up for us against those masters! If you haven’t had enough of this nonsense of unquestioning deference to Wall Street, when will you???

By: jian Wed, 18 Nov 2009 03:05:08 +0000 I hope the next Treasury Secretary would be either Jewish or Chinese (I’m Chinese), because, at the risk of coming off a racist, I’d boldly claim, WE (Jews or Chinese) would never ever strike the kind of deal Geithner did, NEVER!!! It’s stupidity stinking to high heavens, and it’s total loss of common sense. The gov was in a strong position to DEMAND a haircut, because the alternative was the counter parties would get zero. How was that even a hard negotiation???

I would rush to judge that people like Geithner, although geeky smart, are entirely detached from reality on the ground, from everyday life, from common sense. Also, they are only so generous because, in their own mind, they were trying to rescue the world with taxpayer money. I challenge them to do the same, if it were their own money! I bet they’d have bargained a LOT harder then!!

As much as I believe gov has a larger role to play in this country, these incompetent gov bureaucrats’ actions so far have been discouraging indeed. How do we counter the tea-party goers’ arguments against more gov and more taxes, when blatant indifference and incompetence was shown in this dreadful AIG deal??

By: The Epicurean Dealmaker Wed, 18 Nov 2009 01:03:30 +0000 EoC — You are correct: The NY Fed was the principal actor in the AIG drama, not Treasury. My bad. Sloppy commenting.

However, it does you no credit to nitpick. The distinction between Fed and Treasury is not so concrete, meaningful, or durable in this context as you imply. 1) The then-head of the NY Fed is now the Secretary of the Treasury. 2) The Fed and the Treasury were in extremely close cahoots during the entire financial crisis. Do you think they did not talk hourly and coordinate obsessively? 3) The representatives of our government, whatever their department or function, do have a fiduciary obligation, in (at least) the broadest sense, to the citizens of this country. They work for us.

That the government has a fiduciary responsibility to its citizens is entirely the point. And, in my opinion, that fiduciary responsibility does indeed trump those of others in certain heightened circumstances. I maintain AIG was one of those circumstances.

By: Economics of Contempt Wed, 18 Nov 2009 00:51:36 +0000 TED,

Treasury ≠ NY Fed.

Notice that the word “Treasury” doesn’t appear once in the entire section called “NYFRB Decided to Compensate Counterparties Effectively at Par Value.” That’s because Treasury was not a party to the transaction. Last time I checked, ML III was a Fed vehicle.

Pointing out that Treasury has a fiduciary obligation to the taxpayers is totally irrelevant.

By: onthetimes Tue, 17 Nov 2009 19:25:55 +0000 Tom Maguire says the deal with GS had to be done, because the govt had a contract with them. There was no such contract. The government was a shareholder in AIG, and shareholders aren’t responsible for the debts of the company they own shares in. The government didn’t sell any swaps to Goldman, it was AIG that had contracts with GS, and if they defaulted on those contracts, Goldman’s recourse would have been to stand in line at bankruptcy court, so they had plenty of incentive to negotiate.

And as far as his sarcastic comment about “only evil investment banks doing mysterious credit derivative swaps would have their contracts with AIG dishonored” – none of AIG’s other CDS customers were threatening to force them into bankruptcy, only Goldman and it’s friends. Nobody is talking about dishonoring any contracts, either – if the government let AIG go bankrupt, Goldman would have received a lot less than 100 cents.

The deal that the Fed made with AIG and its counterparties is defensible only if you say you had no idea what you were doing. It was an outright gift to Goldman and the others. When the fire department arrives on the scene of a fire, it doesn’t give out rewards to the arsonist, just because they are willing to sell them water.

By: schooner Tue, 17 Nov 2009 18:48:56 +0000 The whole “sanctity of the contract” thing is nonsense. I may own a bond that says Nortel must pay me a set amount of interest but if they don’t have any money or enough money I’m out of luck.

AIG was no different and Goldman was getting more than enough aid by being allowed to become a bank holding company and virtually unlimited access to the Fed as LOLR.

They and all the rest should have taken a haircut.