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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

institutions stood ready to backstop as much as  billion in bank debt. The Fed’s
largest program, announced in November , purchased . trillion in agency
mortgage–backed securities. 

AIG: “WE NEEDED TO STOP
THE SUCKING CHEST WOUND IN THIS PATIENT”
AIG would be the first TARP recipient that was not part of the Capital Purchase Pro-
gram. It still had two big holes to fill, despite the  billion loan from the New York
Fed. Its securities-lending business was underwater despite payments in September
and October of  billion that the Fed loan had enabled; and it still needed  bil-
lion to pay credit default swap (CDS) counterparties, despite earlier payments of 
billion.
On November , the government announced that it was restructuring the New
York Fed loan and, in the process, Treasury would purchase  billion in AIG pre-
ferred stock. As was done in the Capital Purchase Program, in return for the equity
provided, Treasury received stock warrants from AIG and imposed restrictions on
dividends and executive compensation.
That day, the New York Fed created two off-balance-sheet entities to hold AIG’s
bad assets associated with securities lending (Maiden Lane II) and CDS (Maiden
Lane III). Over the next month, the New York Fed loaned Maiden Lane II . bil-
lion so that it could purchase mortgage-backed securities from AIG’s life insurance
company subsidiaries. This enabled those subsidiaries to pay back their securities-
lending counterparties, bringing to . billion the total payments AIG would make
with government help. These payments are listed in figure .. 
Maiden Lane III was created with a . billion loan from the New York Fed and
an AIG investment of  billion, supported by the Treasury investment. That money
went to buy CDOs from  of AIG Financial Products’ CDS counterparties. The
CDOs had a face value of . billion, which AIG Financial Products had guaran-
teed through its CDS.  Because AIG had already posted  billion in collateral to
its counterparties, Maiden Lane III paid . billion to those counterparties, provid-
ing them with the full face amount of the CDOs in return for the cancellation of their
rights under the CDS.  A condition of this transaction was that AIG waive its legal
claims against those counterparties. These payments are listed in figure ..
Goldman Sachs received  billion in payments from Maiden Lane III related to
the CDS it had purchased from AIG. During the FCIC’s January , , hearing,
Goldman CEO Lloyd Blankfein testified that Goldman Sachs would not have lost any
money if AIG had failed, because his firm had purchased credit protection to cover
the difference between the amount of collateral it demanded from AIG and the
amount of collateral paid by AIG.  Documents submitted to the FCIC by Goldman
after the hearing do show that the firm owned . billion of credit protection in the
form of CDS on AIG, although much of that protection came from financially unsta-
ble companies, including Citibank (. million), which itself had to be propped
up by the government, and Lehman (. million), which was bankrupt by the