MORE AIG FUBAR

BLOOMERG--The Federal Reserve Bank of New York paid French banks 100 cents on the dollar to settle trades with American International Group Inc. in November 2008, the same month an AIG competitor negotiated payments of less than a third of that to retire similar bets.

The decision to pay in full came after France’s bank regulator insisted that Societe Generale SA and Credit Agricole SA’s Calyon unit would be violating French law if they accepted less than they were owed, the New York Fed told a special inspector general. The Fed, which had rescued the insurer two months earlier after the collapse of Lehman Brothers Holdings Inc., paid face value to all 16 of AIG’s counterparties, including Goldman Sachs Group Inc., a move that may have cost U.S. taxpayers as much as $43.5 billion.

French law didn’t stop Societe Generale and BNP Paribas SA from taking $1 billion to settle $3.5 billion of trades the same month with New York-based bond insurer Ambac Financial Group Inc., according to three people familiar with the matter. Ambac’s ability to negotiate a discount while the central bank of the world’s biggest economy didn’t adds another question for lawmakers as they examine the most contentious transaction of the government’s bailout of the U.S. banking system.

WB7: F.U.B.A.R.ed by the country that loves Jerry Lewis.