AIG: Did Geithner Give Away the Farm?

James Gattuso / November 17, 2009

It’s official: U.S. taxpayers did not get a good deal when they bailed out AIG last year. That was the conclusion of a report released yesterday by Neil Barofsky, the federal government’s special inspector general for TARP. The conclusion is no surprise: no one holds up the $170 billion bailout of the insurance giant as an example of government at its best. But, the Inspector General’s report puts new teeth on the charge, and pins much of the blame on Timothy Geithner, then president of the New York Fed.

The report’s key charge against Geithner is essentially that he was a bad negotiator. Here’s what happened: AIG had sold massive amounts of so-called “credit default swaps,” pledging to compensate purchasers in the event of losses due to defaults on debts by other instruments. As part of the effort to shore up AIG last fall, the New York Fed bought out many of the purchasers of these contracts. The general idea was to prevent massive losses that would destablize the entire economy.
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