To the Editor:
Re "Inside the U.S. Bailout of A.I.G.: Extra Forgiveness for Big Banks" (front page, June 30):
I take issue with your article’s characterization of the role that the Federal Reserve Bank of New York played in stabilizing American International Group. The article states that "regulators ignored recommendations from their own advisers" to force A.I.G. counterparties to accept losses on their credit default swap contracts.
We asked our advisers—BlackRock, Morgan Stanley and Ernst & Young—to provide options for our consideration, but the fact that options were provided simply cannot be interpreted as a recommendation that we should or could force concessions. No such recommendation was ever made.
The article suggests that a "legal waiver" clause in the agreement that terminated the credit default swap was unusual; that regulators forced A.I.G. into the agreement; and that it unduly benefited the counterparties. We disagree in every respect. Regulators did not force A.I.G. into the waiver clause. The waiver clause was a standard legal provision. It was a mutual release, by which A.I.G. and the counterparties released each other from liability.
Thomas C. Baxter Jr.
General Counsel and Executive V.P.
Federal Reserve Bank of New York
New York, July 1, 2010
Statement of Facts verified by Davis Polk & Wardell LLP (the New York Fed’s legal counsel) and Weil Gotshal & Manges LLP (A.I.G.’s legal counsel) who were responsible for drafting the Termination Agreement