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The AIG bailout was about Europe

June 30, 2009

It makes for a much better storyline to say the federal government’s bailout of AIG was all about saving evil Goldman Sachs from collapse. But the reality is the bailout was driven more by a desire to keep scores of European banks from taking massive capital hits.

Don’t believe it? Well, look at the latest regulatory filing from American International Group about the derviatives mess caused by its AIG Financial Products group. In the late Monday filing, the defacto government-owned insurer talks about its potential exposure to “market valuation losses” in its $192 billion “regulatory capital credit default swap portfolio…written for financial institutions, principally in Europe.”

That’s a lot more than the $70 billion or so in credit default swaps AIG Financial Products wrote on collateralized debt obligations formerly held by Goldman Sachs, Merrill Lynch, Deutsche Bank and other banks. Those CDOs were purchased with money from the Federal Reserve and are now rotting away in a special purpose vehicle called Maiden Lane III.

Sure the big bailout of AIG helped Goldman and other banks holding CDOs. But if AIG had collapsed, all those lesser known European banks that purchased CDS to lower their required levels of regulatory capital, would have faced the prospect of raising tens of billions in capital during last autumn’s market meltdown.

No one likes to talk about that because it’s not as compelling as linking the AIG bailout to the government’s desire to save a single Wall Street firm. But it’s the truth.

Comments

So what was so urgent about saving Europe? Were they thinking world war III? There should have been far more transparency. The government still treats everybody as an ignoramous. Hank Paulson should be in jail along with the ex-CEOs Freddiemac, Fannymae, etc. There are many of us that are far more intelligent than our politicians and can handle the truth. In fact we are tired of the lies, secrecy, cover-ups, etc. in the name of natioanl security and protecting americans or american interests. All they are doing is coverng their asses and protecting their assets; not ours. Take a look at where the campaign funding came from. That’s who our politicians saved; not us. $180 billion to one corporation while ~$50 billion was set aside (but not yet spent) on 300 million americans to stop the plunging real-estate markets. What is that? In 1996 we could have had Rich Lueger for president and in 2008 we could have had Ron Paul. both men with right answers for the right time. Instead, we get attractive looking guys who sell to the media. In other words we get Hollywood instead of substance. Change with no meat.

Posted by Jim | Report as abusive
 

finally, someone who knows something about why these companies got bailed out in the first place. Too bad this isnt juicy stuff or else the media would be all over it.

Posted by MitchNY | Report as abusive
 

Interesting perspective. So we took taxpayer dollars to save face with out European colleagues because our greedy wallstreet children screwed up. In the end, taxpayers foot the bill and get fired by the banks and corporations and Hammering Hank and his crew get millions of dollars as a reward. Again, very interesting.

These are the same people saying that healthcare for all will cost too much. I agree with Jim, follow the campaign contributions and you’ll see who really control the government and its not the politicians.

Good ideas for the public = bad idea for corporations but corporations always win because they buy out Congress to oppose anything that will benefit the masses, such as universal healthcare because the rich would pay too much and the poor would benefit.

Posted by Mike | Report as abusive
 

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