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 swaps – contracts 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]
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?]
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.
Merrill Lynch International
Deutsche Bank (Germany)
Calyon, Crédit Agricole (France)
Coral Purchasing, DZ Bank (Germany)
Bank of Montreal (Canada)
Rabobank (the Netherlands)
Royal Bank of Scotland
Bank of America
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].
Kohn insisted that the Fed didn’t have the authority to do so, a claim Corker said he found “simply incredible.”
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.
[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]
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
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]
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 the European Banks]
A top official tells Congress he opposes unmasking the Wall Street firms that have pocketed tens of billions of dollars in taxpayer bailout funds.