AIG RevisitedThe following comes from
The New GAO ReportThe
"FRBNY officials told us that in seeking concessions, they contacted 8 of the 16 counterparties.... FRBNY officials said that counterparties' initial reactions to these requests were negative....According to our interviews with 14 of the 16 counterparties, FRBNY appears to have started the process of seeking discounts with attempts of varying degrees of assertiveness to obtain concessions from five counterparties. In particular, according to our interviews, FRBNY requested a discount from two counterparties, which said they needed to consult internally before replying....However, FRBNY made contact soon afterward seeking to execute an ML III agreement without a discount, and FRBNY officials did not provide any explanation for their change in position, according to the counterparties we interviewed. Our interviews also indicated that FRBNY requested "best offer" of a discount from two other counterparties, and briefly referenced seeking a discount from another counterparty, before similarly withdrawing its request with little or no explanation...."This is most certainly not the approach to use when attempting to obtain concessions. The GAO attempts to defend the Feds: "FRBNY had little or no bargaining power given the circumstances. The attempts at concessions took place less than two months after the Federal Reserve System had rescued AIG, and the counterparties expected that the government would not be willing to put the credit it had extended to the company in jeopardy." How about if the Feds said something like the following to AIG creditors? "Take 50% now or you can get in line for a U.S.-government-managed AIG bankruptcy." My Conclusions: The European governments were able to extract 50% concessions from banks holding Greek debt. Had Paulson really wanted to obtain significant concessions from AIG creditors, do you think he could have gotten them? I do.