The Congressional Oversight panel has said that the rescue of AIG by the Government adversely affected the U. S. financial system. According to the panel, this bailout gave the impression that the Government in any case would save the firms from their losses.
In 2009, the aid by Federal Reserve was expanded to $182.3 billion. The panel study is led by a Law Professor, Elizabeth Warren from Harvard University. The panel was created by the Congress in 2008 to see the role of Treasury Department in economic stability.
The panel, in its report, has said that the Federal Reserve could go in for any other option where the funds could be given privately. This bailout by the Government assured the banks of the refund of the losses and also that the Government would be ready to pay any amount to avoid the downfall of Financial Institutions in America. The American International Group Inc. then also helped Goldman Sachs Group Inc. and Societe Generale SA by giving them money.
The salvage by the Government, however, helped in preventing major losses to the U. S. economy, which could have otherwise collapsed.
Treasury Secretary, Timothy F. Geithner was the head of Federal Reserve Bank of New York at the time of the bailout. It is known that the U. S. economy had to face this situation because of subprime mortgages. However, Andrew Williams, a Treasury Spokesman, refuted these allegations by the panel, saying that at that time the economy was on the verge of collapse. So, in the very short time given to the Government, this solution was quintessential.