New report alleges that US federal authorities paid too much taxpayers' money to banks holding insurance packages with ailing AIG.
At the height of the great financial collapse of 2008, insurance giant AIG could not come up with enough cash to reimburse the many companies and countries that had insured against a collapse in the US sub-prime housing market.
AIG was such a huge firm that foreign governments from Europe to the Middle East and Latin America were phoning the White House to plead with the Bush administration to stop AIG from going out of business, in case their own economies were ruined.
The US government answered the calls by bailing out the big insurance company - and paying off, in full, the companies that AIG insured.
Now, twelve months on and $150bn dollars of federal cash later to help AIG, a new report says the US federal authorities were too swift to pay back in full the big Wall Street banks who were insured against a collapse in the housing market through AIG.
The report accuses treasury secretary Tim Geithner - at the time head of the New York branch of the US Federal Reserve - and his colleagues in the federal government of failing to negotiate discounted settlements with the banks.
Analysts say that the banks were reimbursed one hundred percent when - had they even tried - federal officials might have got them to agree to pay outs more akin to fifty or seventy five percent of policy value.
"What they wanted to do was pay one hundred cents on the dollar and they wanted to pay it secretly ... and so far from trying to negotiate a deal that would save taxpayers money ... [then] Treasury Secretary [Henry] Paulson and now Geithner wanted to overpay because they wanted to find a way to subsidise those banks," William Black, a former federal regulator, told Al Jazeera.
Mr Black told al Jazeera that the main beneficiary of the pay back was Goldman Sachs, who he said gained around $13bn.
The Wall Street company has given the US its two previous treasury secretaries, including the Bush administration's Henry Paulson, who, prior to joining the government, had steered Goldman's into trouble with risky subprime mortgage investments.
Within hours of the report being made public on Tuesday, Geithner appeared on Capitol Hill twice – once to answer questions from the Senate Foreign Relations Committee and earlier to help launch a new task force to stamp out financial fraud.
He was asked about caving in to pressure from the banks last year. He said:
"The most important thing to understand about this – and this was a tragic failure of our country – is that we came into this crisis without the basic set of tools we needed to contain the damage caused by hugely costly mistakes in parts of our financial system."
A tragic failure indeed, but many economists say it’s not so much the tools that were lacking, but the decision making process by the US government that may not have stopped to ask the pertinent questions before quickly doling out tax payer money at the height of the bust.
