ONE MESSY BAILOUT

Neil Barofsky pulled no punches in his Nov. 17 report about the bailout of AIG, and those emerging with a black eye include every major Wall Street bank and the current Treasury Secretary. Barofsky, Special Inspector General for the Trouble Asset Relief Program, focused on the second phase of the rescue of the floundering insurer: the nearly $30 billion payment to institutions that had entered into credit-default swaps with AIG. The report says the bailout by the New York Fed, which was then led by Timothy Geithner, was poorly handled from the start. First, when a private-sector bailout plan fell through, the Fed had no backup position and quickly lent AIG $85 billion on terms that proved unsustainable. Next the Fed botched negotiations over the $30 billion payout by treating the counterparties--such companies as Deutsche Bank, Goldman Sachs, and Merrill Lynch--with kid gloves and bending over backwards to keep their identities secret. Barofsky also lays out in painful detail the unwillingness of any counterparty except UBS to accept one penny less than top dollar.