This Bloomberg article could be a bombshell in the whole AIG crisis in which many questions have been asked while not many answers have been given. There are many questions on why AIG was bailed out with $85 billion dollars to keep them solvent. Goldman Sachs was a large domestic recipient of this money from AIG. They were paid the full face value on these contracts. At the same time, Goldman Sachs repaid their TARP money and paid huge bonuses that are at least in part were paid by the U.S. taxpayers.
American International Group Inc.’s payments to banks face closer congressional scrutiny after a House Republican requested records to review whether the Federal Reserve Bank of New York quashed the insurer’s effort to pay less than 100 percent on derivative contracts.
The New York Fed and AIG were asked by Representative Darrell Issa to provide documents tied to the decision to settle $62 billion in credit-default swaps without imposing a “haircut” on the banks. Issa, the ranking member of the House Oversight and Government Reform Committee, requested e-mails, phone logs and term sheets in letters today.
Banks may have been overpaid by $13 billion last year because the Fed scuttled attempts by AIG to secure discounts, people familiar with the matter have said. AIG, once the world’s largest insurer, was bailed out in September 2008 after running short of cash because of swaps it sold that required the insurer to compensate banks for declines in mortgage-linked assets.
Analysis: If others took “haircuts” on their dealings with AIG and Goldman Sachs got full value on those contracts and were allowed to payout massive bonuses. It looks like the public outrage on those payouts were not misplaced after all?