This post adds the reaction of New York Fed General Counsel and Executive Vice President Thomas Baxter in a Letter to the Editor of The New York Times published on Friday, July 9, 2010. Mr. Baxter took issue with a report published on June 30, 2010 in The New York Times, which is the subject of many posts: Here on June 30, 2010 entitled, "Fed Demanded Secret Waiver Immunity by AIG: Bad Faith Too?"; also a post here on July 6, 2010, "AIG's Secret "Unknown Claims" Release Worthless Paper?", and another post exploring the Release and its language on Insurance Claims and Issues Web Log also on July 6, 2010, "Who Fleeced the Fiduciaries? AIG's "Unknown Claims" Release Could Be ... Worthless Paper".
Part One. The New York Fed Makes Up a Story to Sell to Nonlawyers. It's Sticking With It. (Now That Nonlawyers Know About the Secret Release by AIG of "Unknown Claims").
A high official in the bureaucracy of the New York Fed has responded to Louise Story and Gretchen Morgenson, "Documents on Bailout of A.I.G. Show How Big Banks Benefited" p. A1, col. 1 (New York Times Nat'l ed., Wed., June 30, 2010). New York Fed General Counsel and Executive Vice President Thomas C. Baxter, Jr. wrote in pertinent part in a Letter to the Editor of The New York Times that was published on Friday, July 9, 2010:
The article suggests that a "legal waiver" clause in the agreement that terminated the credit default swap[s] was unusual; that regulators forced A.I.G. into the agreement; and that it unduly benefited the counterparties. We disagree in every respect. Regulators did not force A.I.G. into the waiver clause. The waiver clause was a standard legal provision. It was a mutual release by which A.I.G. and the counterparties released each other from liability.
[Emphasis added.]
This was apparently big news in some quarters. See, for example, Hugh Son, "Fed Says It Didn't Force AIG to Include Legal Waiver for Banks" (Bloomberg.com, Friday, July 9, 2010).
Part Two. The Real Story About Releases. Or, When Releases Really Are Given and How Releases Really Work.
This is a two-part answer. The first part of the answer is that including Mutual Releases in an agreement of this kind never happens. (Although Mr. Baxter is correct that it purports to be a "mutual release," but he is not correct when he calls it "a waiver provision". To lawyers and to Courts, "waiver" involves the relinquishment of a known right and not of something called "Unknown Claims".)
Second, the language of this Release is neither ordinary or usual. It is clear to practicing lawyers that it was inserted as a "Hail Mary" to try to protect counterparties-clients from the consequences of their own, er, deeds. And it is also clear that the lawyers that wrote it do not practice much, and that they knew they were dealing with a prostrate 'other party' in AIG that would sign anything put in front of it at the time, and did.
Put it in the context of its time: This Release was given by AIG to Claimants after the Federal Reserve of New York had already decided to pay those same Claimants 100 cents on the dollar for all their Claims. In the ordinary course of things, the settling Claimants would provide a Release of their Claims on A.I.G., and in this case, they did.
But what did A.I.G. get as "consideration," i.e., what did it get in return for A.I.G.'s Release of the Claimants? That the Claimants can argue that no-one can sue them regardless of what they did or did not do? Even in 2010, that sounds unnatural. And it is unnatural. It is never done.
And it is against public policy.
Conclusion.
To sum up: Get real, people.
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