Oversight panel: AIG bailout is ‘poisonous’ for marketplace

A congressional oversight panel on Thursday sharply criticized the government’s bailout of American International Group (AIG), saying it could have been tougher in its negotiations with the company.

The Congressional Oversight Panel on the financial bailout said in a report that the government in 2008 did not exercise all of its options before bailing out the crippled insurer with an initial $85 billion package. Taxpayers eventually extended more than $180 billion to the firm, which continues to rely on the aid.

The panel said the government’s actions “continue to have a poisonous effect on the marketplace” and have “fundamentally changed the relationship between the government and the country’s most sophisticated financial players.” The panel argued that private firms have interpreted the bailout as an implicit show of government support for large financial firms.

Congress is in the final stages of approving legislation that seeks to prevent future taxpayer-funded bailouts of financial firms.

The oversight panel said it was concerned that the government relied on JPMorgan Chase and Goldman Sachs, two banks with “severe conflicts of interest,” to work on a private aid package for AIG. “By failing to bring in other players, the government neglected to use all of its negotiating leverage,” the panel concluded.

Goldman Sachs was among the banks that received aid from the bailout because taxpayer assistance went to settle outstanding derivatives contracts the banks had with AIG.

The panel said that the government did not pay enough attention to the perceived conflicts of interest among the small group of lawyers and bankers involved in the private rescue negotiations.

“These links have led to many allegations that the rescue was orchestrated in order to assist friends and former colleagues of those leading the rescue,” the panel said. “Although panel staff has spent significant time reviewing hundreds of thousands of pages of documents from the time of the rescue, to date they have found no evidence of any such concerted effort.”