A government watch dog revealed that the officials that managed the bailout of American international group may have overpaid other banks to neutralize AIG’s business affairs.
The Federal Reserve Bank of New York paid AIG’s business partners a flat value for securities to encourage them to cancel AIG’s insurance contracts with them in order to ease the firm’s liquidity predicament. According to a report from the Special Inspector General, Neil Barofsky; howeer, at least one of these banks would have accepted less than what was given.
New York Federal officials did little to negotiate with the banks at the time when they feared AIG would go bankrupt instead, accommodating to demands from French regulators that they be paid in full for AIG’s debt insurance.
According to the report, the bailout was performed “with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG.”
As a consequence, billions more than necessary were given to U.S. banks including Goldman Sachs, Merrill Lynch, now part of Bank of America Corp.; and Wachovia, now part of Wells Fargo & Co.; and European banks including Societe Generale, Deutsche Banke, UBS and Calyon.
The Federal reserve did not immediately disclose which banks had received how much of the Tax Payer dollars designated to saving AIG, only discharging the information after increased pressure from lawmakers.
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