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/...
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?"