AIG Bailout – The Secret Partners – Where The Taxpayer Money Is Going

A top official tells Congress he opposes unmasking the Wall Street firms that have pocketed tens of billions of dollars in taxpayer bailout funds.

A list obtained by Fortune includes the names of many foreign banks – as well as U.S. giants such as Goldman Sachs.

NEW YORK (Fortune) — Donald Kohn, vice chairman of the Federal Reserve, learned this week about blackmail, Senate style, when he refused to disclose the names of financial institutions benefiting from the bailout of American International Group.

Testifying about AIG (AIG, Fortune 500) before the Senate Banking committee, Kohn respectfully resisted all of its attempts to extract the names. Several committee members grew frustrated and finally got to the point of threatening Kohn with no more dollars for the credit crisis – ever – if he didn’t spill the information.

Said Sen. Jim Bunning, R-Ky., “You will get the biggest ‘no’ you ever got. I will do anything possible to stop you from wasting the taxpayers’ money on a lost cause.”

While the government has maintained that saving AIG was necessary to prevent an even wider catastrophe, Senators contend the move has also bailed out counterparties who took unwise risks, so the legislators want to know who those companies are.

The information that riled the Senate committee this week concerns about $80 billion of credit default swapscontracts that insure investors against losing principal and interest – that AIG wrote on super-senior tranches of collateralized debt obligations (CDOs) that were backed by mortgage securities, some of them subprime. [70% of mortgage defaults in the US involve subprime loans – to be accurate the author should have said – 30% were not subprime] 

When AIG suffered rating downgrades, the resulting collateral calls on the credit default swaps proved ultimately to be much more than AIG could handle and became the main reason the company was bailed out [the main reason the company went under – AIG could not pay the “insurance losses” on bad mortgages]- with government commitments that now exceed $150 billion.

The counterparties to the swaps were 25 financial institutions spread around the world. Many of them would have been vulnerable to a domino effect if they hadn’t received, first, the collateral AIG paid them and, later, billions of dollars from the U.S. government that made the counterparties whole. [The full list of “Counterparties” is not known – as all names have not been released. Billions of American Taxpayer Dollars paid to make foreign Banks whole and reimburse bad bets on risky subprime mortgages]

In this whole disaster that began to play out last September, neither AIG nor the government has ever divulged the names of the counterparties – and that’s what infuriates Bunning and other senators. [The following list is not exhaustive – a complete list of the beneficiaries has not been released – contact Congress and demand that a complete list be made public! How many Politicians in Washington were “made whole” with taxpayer dollars? http://www.usa.gov/Contact/Elected.shtml ,  Demand that a full list of names be released – financial institutions, hedge funds & holding companies]
 FORTUNE LIST  (Foreign Companies Highlighted in red)

Fed wants to keep AIG secrets

Committee chairman Christopher Dodd, D-Conn., describes the counterparties as less than “innocent victims” who used AIG’s rating (then AAA) to take “enormous, irresponsible risks.” He complains, “It is not clear who we are rescuing.” [Senator Dodd needs to step up and take responsibility – he has headed this Committee the last two years – isn’t it his job to know where this money is going?]

The Fed’s Kohn argued that he couldn’t give out the names because the counterparties had entered into contracts with AIG not expecting their identity ever to be disclosed. Naming them, he said, might deter them from doing business with AIG again. [Assuming, of course, that AIG survives. At present AIG is liquidating it’s profitable businesses] 

In the end, however, Kohn said he would carry the committee’s request back to the Fed and see what might be worked out. 

A reliable source, however, has given FORTUNE a list of 15 counterparties, with no dollar figures attached. The list contained the names in the following order. FORTUNE sought comment from all of the financial institutions and none said their inclusion on the list was inaccurate.

 

Société Générale (France)

Goldman Sachs (GS, Fortune 500)

Merrill Lynch International

Deutsche Bank (Germany)

Calyon, Crédit Agricole (France)

UBS (Switzerland)

Barclays (England)

Coral Purchasing, DZ Bank (Germany)

Bank of Montreal (Canada)

Rabobank (the Netherlands)

Royal Bank of Scotland

Bank of America

Wachovia

HSBC (England)

Barclays Global Investors

[McAuley’s World: It appears that Billions of American Taxpayer dollars have been spent on bailing out foreign banks who took foolish risks investing in subprime loans]. 

http://money.cnn.com/2009/03/07/news/companies/aig.fortune/index.htm

NEW YORK (Fortune) — Officials shouldn’t reveal which Wall Street firms pocketed billions of dollars in the government’s bailout of AIG, a top Federal Reserve official said.

The comment was met with incredulity by senators who said the government must do a better job explaining how its actions over the past six months have benefited all Americans, and not simply troubled big companies and their trading partners. AIG has received more than $150 billion in federal aid since its brush with bankruptcy last fall.Sen. Bob Corker, R-Tenn., asked why policymakers didn’t simply guarantee that the government would stand behind AIG’s obligations, without producing any upfront cash

Kohn insisted that the Fed didn’t have the authority to do so, a claim Corker said he found “simply incredible.”

http://money.cnn.com/2009/03/05/news/fed.transparency.fortune/index.htm?postversion=2009030512

Top U.S., European Banks Got $50 Billion in AIG Aid

The names of all of AIG’s derivative counterparties and the money they have received from taxpayers still isn’t known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.

Values of some of those assets are declining, forcing AIG to also post collateral against those positions. And if the portfolios incur losses, AIG will have to compensate the banks. [or, in the alternative AIG could declare bankruptcy like any previous insolvent insurer]

  • 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
  • [This list is not exhaustive – a complete list of the beneficiaries has not been released – contact Congress and demand that a complete list be made public! How many Politicians in Washington were “made whole” with taxpayer dollars? http://www.usa.gov/Contact/Elected.shtml  A complete list of names, financial institutions, hedge funds and holding companies should be made public – transparency now!]

    Other problems are popping up for AIG. The insurer generated a sizable business helping European banks lower the amount of regulatory capital required to cushion against losses on pools of assets such as mortgages and corporate debt. It did this by writing swaps that effectively insured those assets.   http://online.wsj.com/article/SB123638394500958141.html

     AIG had seen this business as a relatively safe bet for the company and its investors. [“Safe” ? AIG was only “off” by $180 Billion – close enough for Government work, right? ]

    The structures were designed to allow European banks to shuck aside high capital costs. A change in capital rules has meant that the AIG protection no longer meets regulatory requirements.

    The concern has been that if AIG defaulted, banks that made use of the insurer’s business to reduce their regulatory capital, most of which were headquartered in Europe, would have been forced to bring $300 billion of assets back onto their balance sheets, according to a Merrill report. [Yes, that means American Taxpayer Dollars are being used to prop up European Banks – a European Bank Bailout at American Taxpayer Expense]

    5 Responses

    1. EXCELLENT Article. Taxpayers need to wake up about what is going on here, especially with Obama’s upcoming budget proposal being debated in congress.

      I forwarded to all my taxpaying friends.

      Thank you !!

    2. Excellent Article. I circulated to all my taxpaying friends.

      Thank you !!!

    3. […] Jim Bunning , R-Ky., “You will get the biggest ‘no’ you ever got. I will do anything possible to stop you from wasting the taxpayers’ money on a lost cause.” While the government has maintained that saving AIG was necessary to prevent an …Page 2 […]

    4. What a waste, I saw this coming two years back….Shame on our elected officals…..maybe the time is coming to take back our country and elect hard decent working people of America…..we could start in Michigan…..what a shame they sold us, just like slaves.

    5. Excellent goods from you, man. I’ve bear in mind your stuff prior to and you are just extremely fantastic. I actually like what you’ve got here, certainly like what you’re saying and the best way through which you assert it. You make it entertaining and you still care for to keep it smart. I cant wait to read far more from you. That is really a tremendous website.

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