New York Fed Sells Last of AIG Bonds, at a Profit
The Federal Reserve Bank of New York on Thursday sold the last toxic assets it acquired from the bailout of American International Group Inc., closing the book on its most controversial intervention during the financial crisis with a large gain to taxpayers.</br></br>The regional Fed bank said it reaped $6.6 billion in profits from selling complex mortgage securities that it took on in late 2008 to stem AIG's cash bleed. The securities, known as collateralized debt obligations, were chiefly responsible for the New York-based insurer's near-collapse and government bailout after their market values plunged during the financial crisis.</br></br>The sales end one of the most contentious elements of the government's efforts to stabilize the financial system as markets were seizing up and banks and other financial institutions were collapsing. The rescue of AIG and the New York Fed's purchases of mortgage securities that AIG previously owned or insured saw tens of billions of taxpayer aid flow from the insurer to banks in the U.S. and overseas.</br></br>The Fed's moves were criticized from some quarters as a backdoor bailout for banks that exposed U.S. taxpayers to undue risks. But from the outset, Fed officials including Chairman Ben Bernanke said they were acting to protect the country from financial meltdown and expected to be fully repaid on loans provided to support AIG.</br></br>"It's a happy ending with the Fed making a handsome profit--but the purpose of the purchases was to stabilize the financial system and not to make money," said Sung-Won Sohn, an economics professor at California State University, Channel Islands.