Why didn't Fed force big banks to take less of AIG bailout?

[girl gone mad]

Why didn't Fed force big banks to take less of AIG bailout?
http://www.mcclatchydc.com/227/story/65609.html">McClatchy

WASHINGTON — The Federal Reserve Bank of New York in November chose not to pursue tough negotiations with large foreign and domestic banks and instead allowed them to receive 100 cents on the dollar in government funds to settle tens of billions of dollars of exotic financial bets guaranteed by American International Group.

At the time, Timothy Geithner, now Treasury Secretary, headed the powerful New York Fed. On his watch, the decision was made to forgo a reduced payout — called a "haircut" in industry parlance — to creditors of AIG to prevent financial chaos around the world, the officials told McClatchy.

The revelation sheds new light on last month's disclosure by AIG that it used loans from the New York Fed to pay more than $17 billion to foreign creditors such as France's Societe Generale and Credit Agricole, and Germany's Deutsche Bank. U.S. investment banks, including Goldman Sachs and Merrill Lynch, also were paid $10 billion in what amounted to a back-door bailout of the troubled institutions that had financed the insurer's risky investments.

The real reasons behind these decisions weren't revealed at the time. And like the Obama administration's decision last month to allow more than $165 million in controversial bonuses to AIG executives, their disclosure is fueling new criticism.

http://www.mcclatchydc.com/227/story/65609.html">More