Two At Fed Had Doubts About Payout By AIG

By Gretchen Morgenson and Louise Story

Weeks after rescuing the American International Group with an $85 billion taxpayer loan in late 2008, Federal Reserve Board officials rejected a proposal that would have forced the insurer’s trading partners to return $30 billion in cash that they had received from AIG in the preceding months.

The Fed chose instead to let the banks keep the cash and to receive additional billions from taxpayers. This decision was made, internal documents show, after two Fed governors expressed concern that such a
plan might be “a gift” to the company’s trading partners, including Goldman Sachs and Societe Generale, a major French bank. The documents were provided to Congressional investigators by the Federal Reserve and were obtained by The New York Times.

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