By Eliot Spitzer
Tuesday, March 17, 2009, at 10:41 AM ET
It’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.
Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.
The feds must investigate AIG’s fishy $12.9 billion payment to Goldman.
By Eliot Spitzer
Sunday, March 22, 2009, at 9:42 AM ET
The transfer of $12.9 billion from AIG to Goldman looks fishier and fishier.
The AIG scandal is getting ever-more disturbing. Goldman Sachs’ public conference call explaining its trading relationship and exposure with AIG established once again that Goldman knows how to protect itself. According to Goldman, even if AIG had failed, Goldman’s losses would have been minimal.
How did Goldman protect itself? Sensing AIG’s weakening capital position through 2006 and 2007, Goldman demanded more collateral from AIG and covered outstanding risk with instruments from other firms.
But this raises two critical questions. The first is why did $12.9 billion of taxpayer money go from AIG to Goldman? What risk—systemic or otherwise—was being covered? If Goldman wasn’t going to suffer severe losses, why are taxpayers paying them off at 100 cents on the dollar? As I wrote earlier in the week, the real AIG scandal is that the company’s trading partners are getting fully paid rather than taking a haircut.