Bob Mcteer submits:
We appear to have an instant consensus that the New York Fed could have reduced the cost of AIG assistance by negotiating a haircut on money owed to its counterparties. I don’t know if that’s the case or not. However, I do have a couple of points to make in the interest of fairness as we rush to judgment.
First, as has been said over and over, the point of a “bailout” or assistance to a systemically important institution is not to save the institution itself but to limit the collateral damage. If that is the rationale of the assistance, it would seem inconsistent to intervene and then inflict the damage on counterparties that the intervention was intended to prevent. And, can you give some counterparties a haircut and not others? It’s a can of worms the New York Fed apparently decided not to open.