According to email messages between American International Group (NYSE: AIG) and the Federal Reserve Bank of New York, the regulator urged the insurance giant to limit public disclosure on payments made to banks, such as Goldman Sachs (NYSE: GS), for credit-default swaps during the midst of the credit crisis.
Credit-default swaps, which were one of many collateralized debt obligations (CDOs) to plummet in value, were apparently paid out at full price, 100 cents on the dollar, by AIG for roughly a dozen banks. This occurred right after the insurer had received a massive government bailout.
Providing full payouts on these securities for the likes of Goldman Sachs and at the time Merrill Lynch, essentially bailed those firms out of their positions in the souring investments, a bailout without technically being a bail out so to speak. The market for these securities vanished and AIG likely could have paid out pennies on the dollar to very willing banks.
The Federal Reserve bailed out AIG in September 2008 as it nearly collapsed due to insurance commitments made for mortgage-backed securities. Just two months later, in November 2008, the Federal Reserve was negotiating on behalf of AIG with banks in regard to default swap losses, which were deteriorating rapidly since they were tied to subprime mortgages.
The full priced purchases of credit-default swaps made by AIG to the banks totaled $62.1 billion, which likely saved the participating banks tens of billions in losses.
The emails between AIG and the New York Fed were obtained by Darrel Issa, ranking member of the House Oversight Committee. Issa contacted AIG CEO Robert Benmosche seeking the emails back in October following a Bloomberg report that the New York Fed told the insurer not to seek discounts in settling the default swaps.
