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New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers



October 28, 2009 – Comments (3)

Here's something that should get you good and mad:

New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers 

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.

Subprime Mortgages

CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.

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.

The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

Habayeb, who left AIG in May, did not return phone calls and an e-mail.

Goldman Sachs

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

Are you kidding me?  Good Grief, what a bunch of use a phrase from “It's the Great Pumpkin, Charlie Brown," which I watched with my son last night.


3 Comments – Post Your Own

#1) On October 28, 2009 at 4:36 PM, StatsGeek (28.64) wrote:

Break up GS.  Friedman should be in prison.

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#2) On October 28, 2009 at 4:37 PM, miteycasey (29.04) wrote:

This is old news.

Most of the money given to AIG went to GS, CITI, Chase, etc. at 100% price owed.

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#3) On October 29, 2009 at 2:18 PM, miteycasey (29.04) wrote:

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