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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

that he was in contact with about a dozen private equity firms over the weekend. 
AIG executives also worked with then-Superintendent Eric Dinallo to help craft a
deal that would have allowed AIG’s regulated subsidiaries to essentially lend money
to the parent company. Fed officials reported to AIG executives during a conference
call on Saturday that “they should not be particularly optimistic [about financial as-
sistance], given the hurtles [sic] and history of [the Fed’s] - lending [authority].” 
And by the end of the day on Saturday, AIG appeared to the Fed to be pursuing pri-
vate-sector leads. “It was clear from the conversation that Flowers [is] actively in-
volved in working with everything (AIG, regulators, bankers, etc) in putting together
both the ‘term sheet’ with AIG, and providing analysis to NYSID on liquidity profile
of the parent company,” Patricia Mosser, a senior vice president at the New York Fed,
wrote to LaTorre and others. 
On Sunday morning, September , Adam Ashcraft of the New York Fed circu-
lated a memo, “Comment on Possible - Lending to AIG,” discussing the effect of a

fire sale by AIG on asset markets. In an accompanying email, Ashcraft wrote that
the “threat” by AIG to sell assets was “a clear attempt to scare policymakers into giv-
ing [AIG] access to the discount window, and avoid making otherwise hard but vi-
able options: sell or hedge the CDO risk (little to no impact on capital), sell
subsidiaries, or raise capital.” 
Before a : P.M. meeting, LaTorre sent an analysis, “Pros and cons of lending to
AIG,” to colleagues. The pros included avoiding a messy collapse and dislocations in
markets such as commercial paper. If AIG collapsed, it could have a “spillover effect
on other firms involved in similar activities (e.g. GE Finance)” and would “lead to
B increase in European bank capital requirements.” In other words, European
banks that had lowered credit risk—and, as a result, lowered capital requirements—
by buying credit default swaps from AIG would lose that protection if AIG failed.
AIG’s bankruptcy would also affect other companies because of its “non-trivial exotic
derivatives book,” a . trillion over-the-counter derivatives portfolio of which 
trillion was concentrated in  large counterparties. The memo also noted that an
AIG failure “could cause dislocations in CDS market [that] . . . could leave dealer
books significantly unbalanced.” 
The cons of a bailout included a “chilling effect” on private-sector solutions
thought to be under way; the possibility that a Fed loan would be insufficient to keep
AIG afloat, “undermining efficacy of - lending as a policy tool”; an increase in
moral hazard; the perception that it would be “incoherent” to lend to AIG and not
Lehman; the possibility of assets being insufficient to cover the potential liquidity
hole. LaTorre concluded, “Without punitive terms, lending [to AIG] could reward
poor risk management,” which included AIG’s unwillingness to sell or hedge some of
its CDO risk. 
The private-sector solutions LaTorre referred to had hit a wall, however. By Sunday
afternoon, Flowers had been “summarily dismissed” by AIG’s board. Flowers told the
FCIC that under his proposal, his firm and Allianz, the giant insurance company,
would have each invested  billion in exchange for the stock of AIG subsidiaries. With