Why the Goldman Sachs-AIG story won’t go away

Font Size

Print

Feedback

Email

Discuss

Related Articles

Female bosses get thumbs down from shareholders

: Jonathan Weil

How did so much taxpayer money end up in the coffers of American International Group Inc’s too- big-to-fail customers? The more we find out, the more it becomes obvious we still don’t know the half of it.

To believe AIG’s disclosures, you’d have thought its executives decided on their own last year to pay 100 cents on the dollar to the various banks that had bought $62 billion of credit-default swaps from the company. Now, it turns out the decision to make the banks whole wasn’t AIG’s. It was made by the Federal Reserve Bank of New York, back when its president was the current US treasury secretary, Timothy Geithner, and its chairman was Goldman Sachs director Stephen Friedman. (Friedman resigned in May, after WSJ reported he had bought more than 50,000 shares of Goldman stock following AIG’s takeover.)

Before AIG was seized, its executives had been negotiating for months with the banks, trying to get them to accept discounts of as much as 40 cents on the dollar, Bloomberg reported, citing people familiar with the matter.

Then, late in the week of November 3, the New York Fed took over the negotiations with the banks from AIG, together with the Treasury Department (at the time run by former Goldman boss Henry Paulson) and Chairman Ben Bernanke’s Federal Reserve Board. Less than a week later, the New York Fed instructed AIG to pay the counterparties in full.

Judging by the result, you might think Geithner’s team was on the banks’ side, rather than AIG’s.