AIG gets a pass

By: Zachary Pienkowski

While we all have heard about the troubles that AIG has been facing over the last year, one thing that is nice talked about quite as much is what happened to those they insured? While it was all over the media how federal regulators worked around the clock in an attempt to bailout AIG, they did not properly work out agreements with their business partners to negotiate the value of their assets. The result was over $62 million of taxpayer and AIG money being distributed to 16 banks which were business partners with AIG. Generally when a toxic asset is being liquidated the value of the asset drops considerably and is usually acquired for pennies on the dollar. This wasn't the case with many of AIG's counter-parties. The exact opposite occurred, in fact, they paid 100 cents on the dollar for nearly all of the underlying assets. Complaints have been pouring in that the Fed gave up too easy and did not exercise their leverage to make AIG's business partners to fall in line like many of the other banks that were bailed out did. The Fed rushed to bail out AIG but then lost all of its leverage because they had nothing to threaten them with anymore. Prior to bailout AIG had the fear of going bankrupt, but after the bailout this was no longer the case. The Fed felt pressured to keep making the collateral payments to the other 16 banks that AIG could no longer fund because they did not want to have to force taxpayers to fully fund the 100 cent on the dollar default swap.

Sources:

http://money.cnn.com/2009/10/13/news/companies/aig_bonuses/index.htm?postversion=2009101318

http://money.cnn.com/2009/03/07/news/companies/aig.fortune/index.htm

http://www.forbes.com/2009/03/16/aig-counterparties-bailout-markets-equity-cds.html