Fed makes ‘a killing’ on AIG contracts

Fed makes ‘a killing’ on AIG contracts
By Henny Sender in New York

Published: January 20 2010 00:00 | Last updated: January 20 2010 00:00

The Federal Reserve is sitting on billions of dollars in paper profits from its controversial effort to unwind credit insurance contracts that AIG provided to banks such as Goldman Sachs, people familiar with the matter said.

The Fed rescue has generated criticism because the banks received 100 cents on the dollar for credit insurance they bought from AIG on collateralised debt obligations – financial instruments that promise the buyer cash flows from pools of bonds or loans. This had led to claims that AIG’s rescue was a “backdoor bail-out” of big banks.