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In today's New York Times, Louise Story and Gretchen Morgenson describe what they dug up in 250,000 pages of documents relating to the late 2008 bailout of the giant insurer AIG that the House Committee on Oversight and Government Reform released last month. Among other things, they discovered a waiver the feds got AIG to sign as part of the bailout, which exempts AIG's creditors, including Goldman Sachs, from any future lawsuits. This waiver is particularly relevant in light of two facts: first, that regulators have rightfully faced criticism for giving the banks that were AIG's counterparties a very sweet deal in the bailout, paying out their claims on AIG 100 cents on the dollar. Second, that the SEC has already sued Goldman for committing fraud on a security very similar to the ones AIG was involved with. If Goldman had issued a fraudulent security that AIG insured, the waiver would guarantee that AIG, and consequently taxpayers, wouldn't be able to recoup any funds. 

Reuters' Felix Salmon provided some context for the discovery of the waiver. 

The waiver itself is interesting. Taking out some of the legal blather, it comes down to this:

Each of AIG-FP and AIG Inc, for good and valuable consideration, the sufficiency of which it hereby acknowledges, forever releases the Counterparty from any and all Claims of any nature whatsoever that AIG-FP or AIG Inc ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring from the beginning for the world to the Termination Date that arises out of or in any way relates to the CDS Transactions.

Yes, it really says "from the beginning for the world." But more interesting to me is the bit about "good and valuable consideration." It seems to me that AIG paid off Goldman and its other counterparties in full - it essentially gave them everything they could possibly want. So what good and valuable consideration did Goldman give to AIG in return for this waiver? Why would AIG agree to this?

The answer of course is that it was not in AIG's interest to agree to this waiver, and it really didn't get much if anything in the way of good and valuable consideration from Goldman or anybody else. But the waiver was forced on AIG by the government, and specifically by Treasury and the New York Fed. Treasury was full of old Goldman hands, including Hank Paulson and Dan Jester; the Fed, too, was and is much closer to Goldman than to AIG.

This story is a little hard to understand, and a little remote from people's everyday concerns. But reports like this one should be of top concern for free marketers. The more light is shed on TARP, the more the story boils down to officials at the Fed and Treasury rescuing their friends in investment banks on the taxpayers' dime. Big numbers, such as the $700 billion allowed for TARP, attract notice. But consider that unelected officials, acting out of the public's sight and in the most opaque ways, protected certain banks from the consequences of their own recklessness, and they did so at the cost of everyone else and counter to the taxpayers' interests.