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Coffee and Markets

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Francis Cianfrocca joins Ben Domenech for the Thursday, October 29th edition of Coffee & Markets, a series of brief morning podcasts on politics and the marketplace, now appearing as well on WashingtonTimes.com.

Today’s podcast focuses on the latest Bloomberg report on the AIG backstory and Tim Geithner’s role in determining the size of the taxpayer bailout while President of the New York Fed, and a discussion on the latest GDP numbers — what they mean and what they don’t.

Items discussed include:

Bloomberg Report on AIG:

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion. Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations…

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.