The Federal Reserve Bank of New York has turned down an offer by American International Group to repurchase dodgy mortgage bonds that the Fed had taken off the insurance company's hands during the financial crisis.
AIG had offered $15.7 billion for the bonds. The Fed thinks it can do better by having companies competitively bid on the mortgage bonds over time.
The economy and financial conditions have improved since the crisis. The Fed says there is a "high level" of interest in the bonds by investors.
The government had bailed out AIG in 2008, extending lifelines worth $182 billion. At the time, the Fed also took over a portfolio of soured mortgage bonds that AIG had held. The company is repaying the government by selling some of its businesses.
American International Group Inc., based in New York, said the Fed's decision could hurt taxpayers.
"We are highly disappointed in the Fed's decision, which may prevent AIG from delivering on its goal that U.S. taxpayers earn a profit on their investment in AIG," a statement issued by the company said. "That the Fed, which has been such a constructive partner over the last two years, would hurt the very company in which U.S. taxpayers own a 92% stake is very difficult to understand."