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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
Goldman also produced documents to the FCIC that showed it received . bil-
lion from AIG related to credit default swaps on CDOs that were not part of Maiden
Lane III. Of that . billion, . billion was received after, and thus made possible
by, the federal bailout of AIG. And most—. billion—of the total was for propri-
etary trades (that is, trades made solely for Goldman’s benefit rather than on behalf of
a client) largely relating to Goldman’s Abacus CDOs. Thus, unlike the billion re-
ceived from AIG on trades in which Goldman owed the money to its own counter-
parties, this . billion was retained by Goldman.
That AIG’s counterparties did not incur any losses on their investments—because
AIG, once it was backed by the government, paid claims to CDS counterparties at
of face value—has been widely criticized. In November , SIGTARP faulted
the New York Fed for failing to obtain concessions. The inspector general said that
seven of the top eight counterparties had insisted on coverage and that the New
York Fed had agreed because efforts to obtain concessions from all counterparties
had little hope of success.
SIGTARP was highly critical of the New York Fed’s negotiations. From the outset,
it found, the New York Fed was poorly prepared to assist AIG. To prevent AIG’s fail-
ure, the New York Fed had hastily agreed to the billion bailout on substantially
the same terms that a private-sector group had contemplated. SIGTARP blamed
the Fed’s own negotiating strategy for the outcome, which it described as the transfer
of “billions of dollars of cash from the Government to AIG’s counterparties, even
though senior policy makers contend that assistance to AIG’s counterparties was not
a relevant consideration.”
In June , TARP’s Congressional Oversight Panel criticized the AIG bailout
for having a “poisonous” effect on capital markets. The report said the government’s
failure to require “shared sacrifice” among AIG’s creditors effectively altered the rela-
tionship between the government and the markets, signaling an implicit “too big to
fail” guarantee for certain firms. The report said the New York Fed should have in-
sisted on concessions from counterparties.
Treasury and Fed officials countered that concessions would have led to an instant
ratings downgrade and precipitated a run on AIG. New York Fed officials told the
FCIC that they had very little bargaining power with counterparties who were pro-
tected by the terms of their CDS contracts. And, after providing a billion loan,
the government could not let AIG fail. “Counterparties said ‘we got the collateral, the
contractual rights, you’ve been rescued by the Fed, Uncle Sam’s behind you, why
would we let you out of a contract you agreed to?” New York Fed General Counsel
Tom Baxter told the FCIC. “And then the question was, should we use our regulatory
power to leverage counterparties. From my view, that would have been completely
inappropriate, an abuse of power, and not something we were willing to even con-
template.”
Sarah Dahlgren, who was in charge of the Maiden Lane III transaction at the New
York Fed, said the government could not have threatened bankruptcy. “There was a
financial meltdown,” she told the FCIC. “The credibility of the United States govern-
ment was on the line.” SIGTARP acknowledged that the New York Fed “felt ethi-
