The feds must investigate AIG's
fishy $12.9 billion payment to ... written b
Posted
Sunday, March 22, 2009, at 9:42 AM ET His first article is
The Real AIG Scandal It's
not the bonuses. It's that AIG's counterparties are getting paid back in full.
The AIG scandal is getting ever-more disturbing.
Goldman Sachs' public conference call explaining its trading relationship
and exposure with AIG established, once again, that Goldman knows how to
protect itself. According to Goldman, even if AIG had failed, Goldman's losses
would have been minimal. How did Goldman protect itself? Sensing AIG's weakening capital position
through 2006 and 2007, Goldman demanded more collateral from AIG and covered
outstanding risk with instruments from other firms. But this raises two critical questions. The first is why $12.9 billion of
taxpayer money went from AIG to Goldman. What risk—systemic or otherwise—was
being covered? If Goldman wasn't going to suffer severe losses, why are
taxpayers paying them off at 100 cents on the dollar? As I wrote earlier in
the week,
the real AIG scandal is that the company's trading partners are getting
fully paid rather than taking a haircut. Goldman's answer is that it was merely taking a commercial position—trying
to avoid any losses at all on its AIG positions. I suppose we can hardly
expect Goldman to reject government assistance in the form of pure cash that
seems to have had no strings attached. But what were the government officials possibly thinking? The only
rationale for what we should call the "hidden conduit bailout" to AIG's
trading partners is that the cascading effect of AIG's inability to pay would
have been devastating. But Goldman has now said very clearly there would have
been no cascade. Not even a ripple. Is the same true of AIG's other counterparties, including several foreign
banks? What examination of the impact of an AIG failure did federal officials
undertake before deciding to spend countless billions bailing out AIG and its
trading partners? The government decision to bail out AIG was made after the private parties,
supposedly at risk, had declined to structure a private series of investments
that might have avoided the need for use of public money. Perhaps they knew
the impact of an AIG default would be small, or perhaps they knew that the
federal officials in the room would blink and ante up. In a post-Lehman moment
when panic, not reason, was dominating the discussion, perhaps they figured
they could walk away with extra billions—and, indeed, they did. This issue cries out for immediate government inquiry. Maybe one or two of
the more than two dozen government entities now beating their chests about
bonuses can redirect their energies to this much larger issue confronting us:
Who signed off on this $80 billion bailout—now approaching $200 billion—and
why? The second question, of course, is why Goldman was wise to AIG's declining
position two years ago but nobody else appears to have known. There is always
the operating premise that Goldman is better than the rest in the field, but
where were the federal agencies that should have been taking a look at AIG's
leverage situation and general financial health? And were AIG's public statements accurate in revealing a decline? Or did
Goldman, with its multiple trading relationships with AIG, get an early
warning? This series of questions also demands immediate inquiry and
resolution. What continues to be fundamentally disappointing is that the "too big to
fail" institutions continue to absorb enormous sums of taxpayer support
without either demonstrating the genuine need for such support or altering
their behavior after receiving it. After getting $12.9 billion in what now seems to be a mere gift, has
Goldman begun to lend in a way that will restore the credit markets? Were they
asked to do so? It is time the government realizes it has two simple options: tightly
regulate entities that are too big to fail or break them up so they aren't.
NB Eliot
Spitzer Was Screwed now he is coming back.