Yesterday, in a fine piece on the fine screwups by a Yale economist and consultant to AIG, who turned out not to be America’s Top Risk Modeler, The Wall Street Journal reveals how Goldman put the screws to AIG last year:

AIG’s trading partners were worried. Goldman Sachs held swaps from AIG that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral, arguing that the assets backing the securities were falling in value. AIG argued that the demand was excessive, and the two firms eventually agreed that AIG would post $450 million to Goldman, this person says.

Late last October, Goldman asked for even more collateral, $3 billion. Again, AIG disagreed, and it ultimately posted $1.5 billion. Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG’s own debt, according to one person knowledgeable about this move.

Indeed, it was Goldman’s demands that triggered AIG’s initial writedowns:

When AIG’s outside auditor, PricewaterhouseCoopers LLP, learned about Goldman’s demands, it reviewed the value of the swaps, according to a Pricewaterhouse official cited in minutes of a meeting of the audit committee of AIG’s board. Last November, when AIG reported third-quarter results, it took its first major write-down on the swaps, lowering their value by $352 million.

The Washington Post yesterday moved the Goldman ball forward in a good story reporting the concern of experts that AIG is stuck putting up more and more collateral as the value of its crummy assets declines and is forced to sell those assets into a declining market. Worries about the value of AIG assets came up at an AIG board meeting last February when nervous directors were confronted with demands from—guess who?—for more collateral (my emphasis):

In February, internal notes show, board members discussed a growing dispute between AIG Financial Products and Goldman Sachs about the value of those assets when Goldman called for AIG to post collateral. AIG’s chief financial officer warned of “Goldman’s acknowledged desire to obtain as much cash as possible.” But AIG’s external accountants warned that it was they who alerted management to the dispute, not AIG Financial Products, and that the division was not properly considering the market in its pricing.

[A bond expert] Rutledge warns that because there has been no public disclosure of AIG’s payments to counterparties, it is impossible to know whether the pricing it is using now is proper.

Which brings us to the main point. The AIG bailout, it is now apparent, is basically a pass-through from taxpayers to the counterparties. It is clear the tax money is barely stopping at AIG for a cup of coffee.

Even AIG’s former chief Hank Greenberg, not exactly Ralph Nader, says the bailout is going straight to Wall Street banks on the worst terms. From the Post story:

In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.

“No one else benefits,” former AIG chief executive and major shareholder Maurice R. “Hank” Greenberg wrote to AIG’s current chief executive on Thursday. “Unless there is immediate change to the structure of the Federal loan, the American taxpayer will likely suffer a significant financial loss.”

Can the U.S. get a better deal? I have no idea.

But what strikes me as utterly unacceptable—a true scandal—is that the recipients of U.S. taxpayer funds in the AIG bailout are not even disclosed. We pay them, and we don’t even get to know who they are? Has this ever happened before?

Reporters are still—to this day—forced to beg, scrape, snuffle, and pry information loose the best they can from anonymous sources. From the case of the source in Bloomberg’s Goldman profile—Mr./Ms. “Wouldn’t Have Lost Money”—we know these sources have their own hidden, bogus agendas. This source was trying to pretend the AIG bailout didn’t matter to Goldman. My eye.

Finally, get a load of the answers to Bloomberg’s Pittman when he asked the relevant public agencies and the government-owned AIG which counterparties are receiving U.S. bailout money:

“What AIG did with its money, you should call AIG,’” said Fed spokesman Calvin Mitchell. “I doubt that we will be talking about AIG’s CDO portfolio.’”


AIG spokesman Nicholas Ashooh said the company would not disclose its counterparties or the contents of the CDO portfolio. He declined further comment.


Treasury spokeswoman Brookly McLaughlin said, “The Fed had the lead on this one: It’s their loan. I don’t know how I could be more clear.”’

I don’t know how I could be more clear, Brookly: This stinks.

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.