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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
On Tuesday morning, the Fed put a number on the table: it would loan billion
so that AIG could meet its immediate obligations. The collateral would be the assets
of the parent company and its primary nonregulated subsidiaries, plus the stock of al-
most all the regulated insurance subsidiaries. The Fed stated that “a disorderly failure
of AIG could add to already significant levels of financial market fragility and lead to
substantially higher borrowing costs, reduced household wealth, and materially
weaker economic performance.” By Wednesday, a share of AIG sold for as little as
.. The previous eight years’ profits of billion would be dwarfed by the .
billion loss for this one year, .
But billion would soon prove insufficient. Treasury added . billion under
its Troubled Asset Relief Program (TARP). Ultimately, according to the Congres-
sional Oversight Panel, taxpayer funds committed to AIG reached billion. The
panel faulted the government for deciding to bail out AIG too hastily: “With AIG, the
Federal Reserve and Treasury broke new ground. They put the U.S. taxpayer on the
line for the full cost and full risk of rescuing a failing company.” The Treasury De-
partment defended its decision, saying that the panel report “overlooks the basic fact
that the global economy was on the brink of collapse and there were only hours in
which to make critical decisions.”
“LIKE A GNAT ON AN ELEPHANT”
The Office of Thrift Supervision has acknowledged failures in its oversight of AIG. In
a March , , congressional hearing, Acting Director Scott Polakoff testified that
supervisors failed to recognize the extent of liquidity risk of the Financial Products
subsidiary’s credit default swap portfolio. John Reich, a former OTS director, told
the FCIC that as late as September , he had “no clue—no idea—what [AIG’s]
CDS liability was.”
According to Mike Finn, the director for the OTS’s northeast region, the OTS’s
authority to regulate holding companies was intended to ensure the safety and
soundness of the FDIC-insured subsidiary of AIG and not to focus on the potential
impact on AIG of an uninsured subsidiary like AIG Financial Products. Finn ig-
nored the OTS’s responsibilities under the European Union’s Financial Conglomer-
ates Directive (FCD)—responsibilities the OTS had actively sought. The directive
required foreign companies doing business in Europe to have the equivalent of a
“consolidated supervisor” in their home country. Starting in , the OTS worked
to persuade the European Union that it was capable of serving as AIG’s “home coun-
try consolidated supervisor.” In the agency wrote: “AIG and its subsidiaries are
subject to consolidated supervision by OTS. . . . As part of its supervision, OTS will
conduct continuous on-site reviews of AIG and its subsidiaries.” Yet even Reich told
FCIC staff that he did not understand his agency’s responsibilities under the FCD.
The former director said he was never sure what authority the OTS had over AIG Fi-
nancial Products, which he said had slipped through a regulatory gap. 
