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Fed's Dudley Defends AIG Bailout

Source: WSJ

Posted on 14 Jan 2010

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The U.S. government, by preventing American International Group Inc. from going into bankruptcy, protected "all the counterparties of the firm," William Dudley, president of the Federal Reserve Bank of New York, said in an interview with the Public Broadcasting Service.

"We didn't have the ability to pick and choose who was going to lose money on AIG" when the insurer was rescued, Mr. Dudley said on PBS's Nightly Business Report when asked whether the AIG rescue could be characterized as a back-door bailout for other players.

Though it wasn't AIG's regulator, the New York Fed bailed out AIG in September 2008 with a big loan and took steps to pay off some banks that were AIG's trading partners in full on derivative contracts tied to mortgage securities.

The actions of the New York Fed and its previous president, Timothy Geithner, in the AIG bailout have come under renewed scrutiny from lawmakers in recent days.

Mr. Dudley said the New York Fed "acted completely in the letter of the law in everything that we've done" in the AIG affair and that "there's been nothing that we've done that's untoward." He added that if AIG had been allowed to collapse, the U.S. might well be in a depression now.