Gretchen Morgenson, assistant business and financial editor and a columnist at the New York Times, exposes more moral hazard.
Late last Wednesday, the New York Fed said in a court filing that in July it had released Bank of America from all legal claims arising from losses in some mortgage-backed securities the Fed received when the government bailed out the American International Group in 2008. One surprise in the filing, which was part of a case brought by A.I.G., was that the New York Fed let Bank of America off the hook even as A.I.G. was seeking to recover $7 billion in losses on those very mortgage securities.
For zero compensation, the New York Fed released Bank of America from what may be sizable legal claims, knowing that A.I.G. was trying to recover on those claims.
To anyone interested in holding banks accountable for mortgage improprieties, the Fed’s actions are bewildering. If the Fed intended that Maiden Lane II own the right to sue Bank of America for fraud, why didn’t it pursue such a potentially rich claim on behalf of taxpayers? The Fed made $2.8 billion on the Maiden Lane II deal, but the recovery from Bank of America could have been much greater. Why did it instead release Bank of America from these liabilities and supply declarations that seem to support the bank in its case against A.I.G.?
The New York Fed would not discuss this matter, citing the litigation. But taxpayers, who might have benefited had the New York Fed brought fraud claims, deserve answers to these questions.
Read the whole article (opens in a new tab so you may easily comment here): Don’t Blink, or You’ll Miss Another Bank Bailout – NYTimes.com.