The Journal’s good scoop this weekend on the AIG counterparties is somewhat furthered today by Fortune’s Carol Loomis. And now it seems we’re finally getting somewhere.
Why does this matter so much? AIG, of course, was effectively nationalized in September as it was about to fail. AIG had issued hundreds of billions of dollars of credit-default swaps, which are insurance against defaults. The Federal Reserve’s multiple bailouts of AIG have just used it as a conduit to funnel money to its Wall Street and foreign customers, whose identifies remain an official government secret. Reporting by Gretchen Morgensonin the Times and Mark Pittman at Bloomberg News has pried loose a few names, including the likes of Goldman Sachs and JPMorgan Chase. We call all this a “backdoor bailout.”
What makes this extra scandalicious is that the government continues to stonewall on who’s getting our money and how much. Congress recently stirred itself long enough to bark out some complaints, six months after the fact. Now, finally, some leaks.
The Journal on Saturday scooped that the counterparties have gotten $50 billion in taxpayer funds, including $6 billion for Goldman Sachs (oddly the paper did not indicate whether it asked Goldman, which had denied any “material” exposure to AIG, for comment) and $6 billion for Deutsche Bank. It lists fifteen banks that have gotten AIG funds.
Fortune has a similar list of fifteen banks, with some differences. It’s not clear why there are discrepancies between its list and the WSJ’s, though Loomis does report that there are “25 counterparties involved.”
It appears the press along with helpful leakers are about, finally, to force the Fed’s hand. Stay tuned on this one.
UPDATE: ABC News gets a leak of its own. It has the report AIG wrote for the Treasury Department on what would happen if it didn’t get another bailout. Basically, financial Armageddon, AIG said.
(h/t Ritholtz)
I used to work at AIG and absolutely decry the destruction of what was once a great company. The AIGFP (Financial Products) guys should be strung up by their thumbs.
That being said, revealing the counterparties in this way is a bad idea. The implication is that, if we don’t like the counterparty, we can change the terms of the deal (i.e. declare bankruptcy, refuse to pay to overseas institutions, etc.).
The financial markets are already frozen due to a lack of trust. If we get Congress involved in choosing winners and losers among counterparties it will scare off any remaining banks still willing to take a risk.
Yes, it might feel good to chastise the deserving losers, but not if we destroy the financial system by doing so.
#1 Posted by JLD, CJR on Tue 10 Mar 2009 at 01:06 PM
Be very wise and choose your investment wisely, as there are some stocks that don't make for as good an investment as you might think. The Forbes list of those exact investments has come out, and the list isn't exactly a shocker. AIG, Citigroup, Fannie Mae, Freddie Mac, and GM are the stocks losing money at a frantic pace, and among them, GM is flirting with bankruptcy. This isn't a shocker, as every one of these megafirms is currently great troubled, and went crying to the government about how they lost all their money. Every firm on the list had to get a personal loan from the taxpayers. It's a subject of great speculation if we'll get a return on our investment.
#2 Posted by Kellie B, CJR on Fri 1 May 2009 at 01:48 AM