Secret Fed Bailout Let Bank of America Off the Hook for Billions
A secret bailout deal struck between the Federal Reserve Bank of New York and Bank of America may have let the big bank off the hook for billions of dollars in legal claims in exchange for a mere $43 million settlement.
According to the New York Times, court filings reveal that the New York Federal Reserve 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.”
Times financial writer Gretchen Morgenson called the Fed’s actions “remarkable” and “bewildering.”
Former Federal Reserve Bank of Cleveland official Walker F. Todd agrees:
As a public entity, the Federal Reserve needs to take its custody of public funds seriously enough to ask for more than merely nominal compensation when it is giving up things of value to a bank holding company. If the central bank starts releasing binding legal claims for nominal compensation, it looks like just one more element of the secret or back-door bailout of the banking system.
The undisclosed settlement took place in July of 2012.