Bloomberg News has a great story today on how the government’s AIG bailout not only preserved those infamous $165 million in bonuses but also billions more at its bailed-out counterparties, including foreign banks.

Basically banks like Goldman Sachs and Merrill Lynch bought billions of dollars of insurance from AIG on their junk bets. AIG goes essentially bankrupt and wouldn’t have been able to cover those bets without the government stepping in. Government steps in and covers those bets at a hundred cents on the dollar because it worries (correctly) that failing to will set off a chain reaction of bankruptcies and crippling losses. Banks are able to continue to pay billions of dollars in bonuses.

Reporters Mark Pittman (subject of an Audit Interview last month) and Christine Harper put this in context in a great, straightforward lede:

The U.S. Treasury Department preserved a payday for five banks that was worth almost 200 times the bonuses handed out at American International Group Inc. through a government rescue.

Does it start to make more sense why the establishment got so worried last week about the bubbling over of outrage at AIG?

As part of a bid to prevent the insurer’s failure, the U.S. settled derivatives and loan contracts worth $32.7 billion with Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale, Deutsche Bank AG and UBS AG. That’s about half the $66.7 billion that those companies, the five biggest beneficiaries of loans and capital infusions to for AIG, said they spent on pay and benefits last year for employees, some of whom created or traded toxic subprime assets that proved deadly for lenders…

“Absent this money, it wouldn’t have been sufficient to allow the banks to pay bonuses or anything else,” said Lynn Turner, chief accountant for the Securities and Exchange Commission from 1998 to 2001. “It’s safe to draw the conclusion that the money was necessary to pay bonuses.”

Which is why the Bush administration didn’t want us to know who was getting the AIG money last fall and why we needed to know. The bonuses would have been stopped in their tracks then had the public known about this.

But this scandal is bipartisan, of course. It entangles the Obama administration, which specifically lobbied to adjust legislative language to allow this to happen—and then lied about what it knew when the scandal erupted.

And, yes, American taxpayers bailed out European banks:

A second group led by Calyon, the Paris-based investment bank of Credit Agricole SA; Frankfurt’s DZ Bank AG; and Barclays Plc in London, received payments from AIG totaling $17.2 billion, according to the company. No legislation has been submitted to recover bonuses at foreign companies that received money in the insurer’s rescue.

Goldman Sachs has constantly said it wasn’t exposed materially to AIG, that it had hedged its exposure to the company.

Deutsche Bank, Merrill Lynch and Goldman Sachs all have said the AIG payments weren’t related to employee pay.

“Absolutely not at all,” David Viniar, Goldman Sachs’s chief financial officer, said on a conference call with journalists March 20. “It really didn’t affect the bottom line of Goldman Sachs.”

But it got $8.1 billion from the government via AIG. That’s money it wouldn’t have had otherwise, right? I’d like to see a story really digging into the Goldman specifically now that all of this is finally on the table.

Here, Pittman and Harper skewer Goldman’s assertion thusly:

For Goldman Sachs’s 30,067 employees, the $8.1 billion that came from the U.S. government via AIG was equivalent to about three-quarters of the firm’s $10.9 billion in compensation for last year. Pay and benefits were down 46 percent from 2007, the bank said. Goldman Sachs employees averaged $363,654 in compensation during 2008.

Nice.

Also awesome? This:

The biggest Merrill bonus, $33.8 million, was received by Andrea Orcel, who advised Royal Bank of Scotland Group Plc to buy ABN Amro Holding NV, a transaction that ended with the largest loss in U.K. corporate history, at $34 billion.

I love it.

And make sure to check out the table that goes with this piece.

Great work by Bloomberg.

ADDING:

There is no excuse for the rest of the press not to follow this clever analysis tomorrow even if it can’t advance the ball. Or will they be gunshy about triggering another wave of public outrage like the one so condemned by their columnists last week?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.