All too often we hear that it's critical to have an insider to oversee Wall Street. There's a lot to be said for this argument and in many, if not most cases, it's true. This is a clever bunch and you need experts who understand the system and know the tricks. In the case of the New York Federal Reserve President at the time Tim Geithner, he either didn't properly understand the environment or he was a fool. Either way, it's not encouraging news.
When the credit crisis was turning dangerous, AIG was seeking 40 cents on the dollar to cover their crazy gambles. Good old Timmy Geithner would have none of it. He increased the figure to 100 cents on the dollar. This was a critical factor in AIG sending $14 billion to Goldman Sachs and the US taxpayers paid a $13 billion premium over AIG's original target for selling their trash. When people question Geithner's competence or his ability to guide the US economy, it comes from situations like this. It's hard to put faith in someone who gives away the farm to Wall Street. Bloomberg:
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.
