Wall Street Journal Exposes Beneficiaries of the AIG Bailout

[FourScore]

Wall Street Journal Exposes Beneficiaries of the AIG Bailout
by pragprogress
Sat Mar 07, 2009 at 07:30:09 PM PST

The Wall Street Journal reports that major U.S. and European banks received billions in payouts from AIG after AIG was rescued by the Federal Reserve with $85 (now $173) billion in federal funds last fall. Of course, we still do not know where most of the money went even though Congress has requested that information:

In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG.

http://online.wsj.com/article/SB123638394500958141.html

It's just hard to fathom the sense of entitlement required to think that the public does not have the right to know where tens of billion of its dollars are going. Because it would make people "wary of doing business with AIG"? Ya think?

But here is the list as it now stands:

Goldman Sachs
Deutsche Bank
Merrill Lynch
Société Générale
Calyon
Barclays
Rabobank
Danske
HSBC
Royal Bank of Scotland
Banco Santander
Morgan Stanley
Wachovia
Bank of America
Lloyds Banking Group

Goldman Sachs and Deutsche Bank received $6 billion each. The total AIG payout to these banks that the Wall Street Journal was able to identify thus far stands at $50 billion.

Is it "xenophobic" to note in passing that the U.S. taxpayer is now indirectly bailing out European banks?

For anybody who does not yet know the backstory, these banks are counterparties to unregulated insurance contracts sold by AIG called "credit default swaps" that were supposed to protect them against bad investments and loans. The only problem was, AIG never had the ability to make good on even the smallest percentage of those contracts, and because it was an unregulated market, there was no government agency forcing them to keep the appropriate amount of reserves on hand in order to be able to do so.

If you or I sold unregulated insurance contacts to our neighbors, without any government oversight, we would be sent to jail. These transactions were deemed permissible, however, because the buyers of these contracts, as evidenced above, were the most wealthy and sophisticated financial institutions in the world, and thus presumed to be capable of making their own determination about the risk that AIG would default on them. So why is the government on the hook now?

Well, apparently, they weren't that sophisticated and now the failure of AIG represents a "systemic risk" to the financial system. Once again, we come to the "too big to fail" argument, the same one used to justify hundreds of billions in public funds for Citibank, Bank of America, JP Morgan, et. al., all of which have been deemed "too big to fail." As we sink ever-deeper into what increasingly looks like the first economic depression in 80 years, one wonders exactly what it is that we've avoided through our generosity to these institutions?

More importantly, what basic human needs will go unmet at some point in the future to pay for the cost of saving these institutions? Last I checked we still had millions homeless, and millions more without health care in this country. Is bailing out European bankers really a higher priority than housing the homeless and healing the sick here in America?

I'll say again what I've said since the beginning of this crisis, and what, for me, remains the only really interesting question with respect to these bailouts:

When does "too big to fail" become "too big to bail?"

http://www.dailykos.com/story/2009/3/7/213346/4075/914/705895

[PDJane]

1. There's an interesting conflation there...........

between the recipients of bailout money and the holders of shares in the Federal Reserve.

This is one of the many reasons that the Federal Reserve should be nationalized.

[aquart]

2. I like the way you think.

And if you add in public hangings I will be in complete agreement.

[acmavm]

6. First get it through the heads of the stupid American public that the Fed

is a private entity. I am always floored by how many people are fooled by the word 'federal' in the name of that bank.

[Hannah Bell]

3. I note that bailout costs are now over 8 trillion. The Social Security Trust Fund we supposedly

couldn't pay off over the 30 years of the boomers' retirement is a bit over 2 trillion.

Yet for the banks, 8 trillion in 1 year is not too much.

[exboyfil]

5. Good point about the contrast between SS and the bail outs

We have sent nearly the entire trust fund collection in 2008 to AIG as direct loans/preferred stocks/whatever. Goodness knows how much worthless paper the Fed Discount window is holding for them.

Where do you get the $8T from? I was thinking closer to $2T. I would like to read your source.

[AllentownJake]

7. Remember when Bush wanted to give Wall St. Social Security

They just found another way to take it.

[janet118]

4. As Jon Stewart noted . . .

Aren't some of these banks getting bailouts directly as well as through AIG? I'm changing my name to Morgan Stanley.

[gratuitous]

8. Gee, where are all the poor folks on that list?

You know, all the people who were "forcing" the banks and the mortgage companies to write them home loans that "everyone" knew they were never going to be able to pay off? And that the institutions writing those mortgages just happened to pocket fat loan origination fees before they sold and re-sold the mortgages in a churn 'n' burn frenzy to other institutions?

[Bandit]

9. Didn't most of those banks also get a direct bailout from the Government as well?

Are tax payers paying the same bill twice?