US watchdog panel slams AIG bailout

City A.M. Reporter
A REPORT by the Congressional Oversight Panel, set up by lawmakers to monitor the $700bn (£476bn) bailout fund, blasted the government’s $182bn bailout of insurance giant AIG for its continued “poisonous effect” on financial markets and said it’s still unclear whether taxpayers ever will be fully repaid.

“For now, the ultimate cost or profit to taxpayers is unknowable, but it is clear that taxpayers remain at risk for severe losses,” the report said.

The panel was highly critical of the decision to bailout AIG, and said Treasury and Fed officials should have acted earlier and been more aggressive in seeking a private rescue of AIG. It also attacked the New York Fed’s decision to rely on just two banks – JP Morgan and Goldman Sachs – to examine the possibility of a private sector rescue.

“The Panel is concerned that the government put the effort to organise a private AIG rescue in the hands of only two banks – banks with severe conflicts of interest as they would have been among the largest beneficiaries of a taxpayer bailout,” the report said. “By failing to bring in other players, the government neglected to use all of its negotiating leverage.”

The report is the latest salvo in a barrage of criticism of the Fed’s and Treasury’s handling of the AIG bailout from government auditors and US lawmakers in recent months.

The rescue, prompted by billions of dollars in cash calls from credit default swaps that AIG sold during the housing boom, was the costliest of the financial crisis.

The panel criticised current US Treasury secretary Timothy Geithner for his role in the 2008 bail-out, which he oversaw as then head of the New York Federal Reserve.

The report said that New York Fed officials allowed precious days to go by in September 2008 when they knew AIG had severe liquidity problems.

The Congressional Budget Office estimates that taxpayers will lose $36bn on the rescue.