Yes, Senator Charles Grassley suggests that bonus-wielding AIG execs resign or drive swords into their guts. But cooler heads may yet prevail in the drama playing out in the American outrage arena. The Wall Street Journal argues that politicians are focusing on the bonuses because the tougher question about why contractual obligations to banks should be paid is far trickier and more costly than the somewhat spurious argument that AIG needs to retain top talent.
According to the Journal, counterparties – well, at least Goldman Sachs – were hedged against losses from credit default swaps written by AIG. So if AIG had gone bankrupt, voiding these contracts, the damage to the global banking system may not have been as catastrophic as had been feared.
Why these counterparties should be getting tens of billions of dollars in bailouts if they were hedged anyway is a question that needs to be answered. Investors who bought AIG-written CDS as investments rather than insurance, whether they be French banks or freewheeling U.S. hedge funds, would hardly be surprised to have lost their money in this environment. Might they have been even more puzzled to be paid off?
At the risk of repeating ourselves, we still consider this to be the bed that the U.S. government made for itself when it deemed AIG too big to fail and yanked it from the jaws of a perhaps well deserved bankruptcy.
Deals of the Day:
* Brazil’s largest meat processor, Sadia, said it was considering a business tie-up with Perdigao, another major meat processor and exporter.