Fed Duo Sounded Alarm Over AIG 'Gifts' to Banks

Geithner, Paulson face grilling over 'backdoor bailouts' for AIG clients
By Rob Quinn,  Newser Staff
Posted Jan 27, 2010 5:47 AM CST
The decision to compensate AIG's trading partners at 100 cents on the dollar will be the focus of a House hearing today .   (AP Photo/Stephen Chernin, File)

(Newser) – Two Federal Reserve governors expressed their unease about the Fed's rejection of a plan to force big banks to return $30 billion in cash they received from AIG before its bailout in late 2008. The officials warned that the decision to let the banks, including Goldman Sachs, keep the collateral they paid AIG on credit insurance contracts might be "a gift" to the firms, according to documents obtained by the New York Times.

The Fed's failure to get a better deal on behalf of the taxpayers and the secrecy surrounding what critics dub "backdoor bailouts" is the focus of a congressional hearing today. Tim Geithner, head of the NY Fed at the time, and former Treasury Secretary Henry Paulson will be among those grilled by the House Oversight Committee. Geithner, in prepared testimony, said that trying hard to win concessions could have brought AIG down with "catastrophic" consequences.

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