As I reported earlier, at today’s House Financial Services hearing, Spencer Bachus (R-AL), the committee’s ranking member, made an interesting allegation. He suggested that, though AIG had spent billions of dollars in bailout money to make its major counterparties whole, some smaller institutions (including U.S. banks) had been asked to accept 20 or 30 cents on the dollar for secured loans they’d made to AIG subsidiaries.
This obviously raises several questions. For instance: Which institutions got stiffed? Why were they asked to take a hit when bigger institutions never were? What was the nature of the loans they made? Unfortunately, these turn out to be difficult questions to answer.
What we do know is this: Before today’s hearing, Bachus sent letters both to Barney Frank and to Timothy Geithner about this very issue. I’ve gotten a hold of the former letter, but haven’t yet been able to get my hands on the latter.
You can read the whole letter to Frank here, but the key paragraph reads:
I have been informed that, in contrast with its treatment of foreign banks, AIG is now attempting to force many of its creditors that are U.S. banks to accept severe reductions in the debt owed to them. I am told in some cases that these U.S. banks are being asked to accept reductions of over 70% of the debt owed to them.
Which is basically what Bachus said at the hearing. It’s also fairly unspecific. The other letter allegedly contains more detail. But, perhaps because of that, nobody’s being all that forthcoming with it. At least not yet.
We’ll try to get a hold of it, but until then we’ll keep our eye on what Bachus and the committee minority have to say publicly about the matter.
