The inexplicable AIG waiver

By Felix Salmon
June 30, 2010
Louise Story and Gretchen Morgenson have another huge AIG/Goldman story today, which centers on one new and interesting piece of information: when AIG paid off its bank creditors in full, with the help of that monster government bailout, it also signed a waiver forfeiting its right to sue those banks, including Goldman.

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Louise Story and Gretchen Morgenson have another huge AIG/Goldman story today, which centers on one new and interesting piece of information: when AIG paid off its bank creditors in full, with the help of that monster government bailout, it also signed a waiver forfeiting its right to sue those banks, including Goldman.

The waiver is buried on page 385 of the 823 pages of documents that the NYT has, wonderfully, put online in a very easy-to-read form. (It’s also linked to the full 250,000-page document dump from the House Committee on Oversight and Government Reform, if you want to go trawling through the documents yourself.) I was rude about the NYT putting source documents online a couple of weeks ago; this is the best possible way of the NYT proving that I was wrong.

The waiver itself is interesting. Taking out some of the legal blather, it comes down to this:

Each of AIG-FP and AIG Inc, for good and valuable consideration, the sufficiency of which it hereby acknowledges, forever releases the Counterparty from any and all Claims of any nature whatsoever that AIG-FP or AIG Inc ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring from the beginning for the world to the Termination Date that arises out of or in any way relates to the CDS Transactions.

Yes, it really says “from the beginning for the world.” But more interesting to me is the bit about “good and valuable consideration.” It seems to me that AIG paid off Goldman and its other counterparties in full — it essentially gave them everything they could possibly want. So what good and valuable consideration did Goldman give to AIG in return for this waiver? Why would AIG agree to this?

The answer of course is that it was not in AIG’s interest to agree to this waiver, and it really didn’t get much if anything in the way of good and valuable consideration from Goldman or anybody else. But the waiver was forced on AIG by the government, and specifically by Treasury and the New York Fed. Treasury was full of old Goldman hands, including Hank Paulson and Dan Jester; the Fed, too, was and is much closer to Goldman than to AIG.

The whole thing is very smelly, and I’d love to see a better reason for the waiver’s existence than this:

David Moss, the Harvard professor, said the government might have been concerned that the insurer would use taxpayer money to sue banks. “The question is: was this legitimate?” he asked. “The answer depends on the motivation. If the reason was to avoid a slew of lawsuits that could have further destabilized the financial system in the short term, this may have been reasonable.”

But the fact is that wasn’t the reason: since AIG was being nationalized, if the government wanted to avoid any lawsuits in the short term it could simply tell AIG not to sue Goldman. The point of the waiver was clearly to enjoin AIG from ever suing Goldman even after it emerged from government control. And there’s no good reason for that.


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“very smelly”? It was one of the most blatantly corrupt thefts engineered by the government ever. The amount the government gets repaid from the liquidation of AIG assets will be equal to how much they stole from AIG, and that doesn’t include the write-down that Goldman and AIG’s other counterparties should have been forced to take for buying out their swaps.

AIG shareholders were no doubt run over by AIG management, but they then had what was left in their pockets picked by the government, and most of the public still believes AIG was “bailed out”.

Posted by OnTheTimes | Report as abusive

This is not inexplicable at all. Any lawyer worth their salt would insist on it. If you look closely, you’ll see that just before that release, the banks agree to a similar waiver of all rights to sue AIG. It’s standard in almost every contract (of any type), and credit default swaps are no exception. Indeed, it would be much more extraordinary if these two clauses were not included.

The CDS says that if X happens, AIG pays. When AIG pays, both parties agree that the contract has been satisfied, and release each other from any claims under the contract. The reason this is standard is that everyone wants to be clear and in agreement that the contract is fully satisfied and they can walk away without worrying about the contract going forward.

Posted by | Report as abusive

A few observations:

[Contextual] The waivers are embedded in the CDS Termination Agreements, which tore-up both AIG’s and their Counterparties’ obligations w/r/t the covered CDS-on-ABS. Note that the underlying referenced ABS were simultaneously purchased at [effectively] par value by the FRBNY/AIG-funded Maiden Lane III SPV.

The waiver is bilateral. Both AIG and Counterparties agree to release each other from claims.

The waiver language appears consistent in many respects to generic claims release terms in a variety of termination contracts, including the language referring to the period “from the beginning of the world to the Termination Date.” See: active&client=firefox-a&rls=org.mozilla% 3Aen-US%3Aofficial&q=%22from+the+beginni ng+of+the+world%22+%22termination+agreem ent%22+claims+release+unknown&aq=f&aqi=& aql=&oq=&gs_rfai=

Posted by Sandrew | Report as abusive

Someone’s being disingenuous. There are a few things in life one should never sign, among them being a 200-page contract with a record company, and this gargantuan piece of ex post facto fluff being another. TISM!

Its terms, upon examination, run contrary to ostensible interest of the bailout funder, who would be the American taxpayer. They do, however, benefit parties proximate to ostensible trustees of the bailout at the New York Fed. The situation is not without partiality, so voiding the covenant.

That there’s nothing customary about such terms being flagrantly inflicted after the fact should be as clear as ones resolve never to tolerate anything like this travesty of a bailout ever happening again, while still going after all the culprits behind the last one, some of whom presently continue holding down jobs at the NY Fed and in Washington DC.

Posted by HBC | Report as abusive in legal terms, the two thieves have agreed not to steal from each other? This thing smelled from day one. Henry Paulson was the one behind this deal. First off, most of AIG’s employees were not in America. They are scattered across the globe. So the impact of this company failing would have probably had minimal impact on any given country. This was really all about giving Goldman billions in a back door scheme. This deal was cooked up by Paulson and the Feds on Friday and done by Sunday. No due diligence was done nor were there any conditions set for bailing this company out. Like requiring that the automatic multi-million bonuses to the Financial Products group in London be null and void in order to save the company. None of these guys would ever in a millions years have done a deal like this if is was their own money at risk. But they had no problem with it since it was yours and mine they were risking.

Posted by justanotherjoe | Report as abusive

Nothing we can do about it, Big Money owns all the chumps in the US Senate, the Fed and Treasury. As long as Money calls the shots, they have carte blanche and we are screwed ..

Posted by Woltmann | Report as abusive

By the way fellow Arizonian’s ask Mr McCain to explain the following:

“A day after he dismissed a federal bailout for American International Group, Republican John McCain announced Wednesday that circumstances had forced him to shift his position and that he supported the proposed $85 billion rescue of the insurance giant.
McCain, who in recent days has slammed what he called Wall Street greed and corruption for causing the latest downward spiral of the stock market, said he had to change his position on AIG to protect millions of Americans who could be hurt if the company was forced to seek bankruptcy protection.
“The government was forced to commit $85 billion,” McCain said in a statement. “These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America.”

hmmmmmm wonder where Mr McCain stands on Wall Street Reform today. Isn’t it time for a changing of the guard in Arizona?

Posted by justanotherjoe | Report as abusive

Ask Mr. McCain how he voted on the recent package to extend unemployment benefits for those America’s that he was so worried about that would get caught in the crossfire if this company filed for bankrupsy. Or perhaps those weren’t the American’s he was thinking about in his statement above?

Posted by justanotherjoe | Report as abusive


No. They agreed to use the standard terms that everyone uses. That language, or language of similar meaning is boilerplate in just about every credit default swap termination agreement. The notion that there is anything unusual about it is just silly. In fact the documents look boringly like every other CDS termination agreement. I don’t know anything about who did the deal or any of that other stuff in your rant, but I do know that.

If you go to any law firm that handles these agreements – reputable or otherwise – and look at their standard docs, it’ll have those terms. They’ll take them out, if the client wants them taken out, but it’s a serious concession and it’s not given up without something in return. That’s pretty rare though, because the whole point of the CDS termination is that everyone agrees that by making the payment, the agreement has been fully satisfied and everyone can go their separate ways and not worry that next month they’ll have to defend a lawsuit for breach of contract.

Posted by | Report as abusive

someone, the waiver was not in the CDS, it was in the document that gave money to Goldman, and gave nothing to AIG. The waiver may be boilerplate between two parties who receive some value, but AIG didn’t receive any value at all.

Posted by OnTheTimes | Report as abusive


You may well be correct that such a waiver is a standard term and you are certainly correct that such a waiver is a “serious concession and it’s not given up without something in return”.

But the fact is this concession could have been forced because the counterparties WERE getting something very serious in return, payment on their CDS’s at par rather than what they would have recieved had AIG failed. Which is what would have happened absent the Fed bailout. In fact the failure to extract this concession is of a piece with the Fed’s failure to negotiate a haircut.Both instances were simply handouts to the banks.

Posted by cmurphy186 | Report as abusive

This odious financial suicide note opened the floodgates for Fannie Mae to compensate questionable mortgage lenders by buying up their notes at full balloon pop, with no hope of recourse to anyone caught in the middle, never mind the taxpayer. And there went the market with it.

A search of the document fails to return any inclusion of the words “of sound mind” on the part of anyone signing it. So, no, there ain’t no sanity clause.

Posted by HBC | Report as abusive

It appears I’ve opened a can of worms and Howey, Cheatum and Howell have stepped up to explain the intricacies. Nothing has changed. The deal was a bad deal for the U.S. public. A due diligence was never done of this deal and the government left contracts in place between AIG and their employees that should have been a deal killer under any other circumstances. No one of sound mind would have forked over $85 Billion dollars without at least some concessions or posturing. The U.S. Govt just flat out gave them the bucks, no questions asked.

Posted by justanotherjoe | Report as abusive

pardon me..that’s Dewey, Cheatum and Howell…

Posted by justanotherjoe | Report as abusive