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AIG And Its Counterparties
By Bob McTeer on November 25, 2009 | More Posts By Bob McTeer | Author's Website
We appear to have an instant consensus that the New York Fed could have reduced the cost of AIG (AIG) assistance by negotiating a haircut on money owed to its counterparties. I don’t know if that’s the case or not. However, I do have a couple of points to make in the interest of fairness as we rush to judgment.
First, as has been said over and over, the point of a “bailout” or assistance to a systemically important institution is not to save the institution itself but to limit the collateral damage. If that is the rationale of the assistance, it would seem inconsistent to intervene and then inflict the damage on counterparties that the intervention was intended to prevent. And, can you give some counterparties a haircut and not others? It’s a can of worms the New York Fed apparently decided not to open.
Second, the original $85 billion “bridge loan” made by the Fed was assumed to be paid back as AIG assets are sold. That amount has since grown through TARP, but an eventual payback is still likely. That means that taxpayers will not bear the cost of making the counterparties whole. It will be borne by AIG’s owners.
Third, and less important, we should recall the extraordinary events that all seemed to be taking place at once during that week in September 2008. Monday morning quarterbacking over a year later shouldn’t assume that what has become clearer in the past year was clear then.
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Sorry Lonesome Dove - this pig just doesn’t fly no matter how much lipstick you stick on it - it was an insdie job, ripping of the taxpayers for the robber barrons once again. And by the way - I seem to remember that you were part of the great Greenspan buble blowing party of the Y2K insanity. It’s time to admit that the Fed is focused soley on protecting the wealth of the rich - its dual mandate - to support full employment is a smoke screen that is faithfully demonstrated by raising rates when wages increase or jobs become available. Bottom line - the Fed is the big slave master in the sky. So let’s cut out the BS, and you can quietly go ride off into the sunset singing that same old tired CW tune.