German and French banks got $36 billion from AIG Bailout

Posted by: Michael Mandel on March 15

We officially moved into the next stage of the crisis today. AIG, likely under pressure from the administration, decided to come clean about where most of the bailout money was going. In a press release with several attachments, the struggling insurer detailed which counterparties had gotten about $100 billion of the bailout funds.


I added up the various lists provided by AIG by country (see below), and the results were quite revealing. About $44 billion went to counterparties headquartered in the U.S., such as Goldman Sachs and states such as California and Virginia.

But as I expected, the majority of the funds—$58 billion—went to banks headquartered outside the U.S. The big winners were French and German banks, which pulled in $19 billion and $17 billion respectively.

To put these numbers in perspective, remember that the U.S. fiscal stimulus bill passed in February provided only $27.5 billion for highway and bridge construction.

In effect, the U.S. Treasury and Fed have been bailing out the rest of the world, to a massive degree. Is this a good thing? Perhaps.

But the U.S. cannot be the banker for the entire world. Now that the list are public knowledge, Congress is going to balk at providing any more open-ended financing for foreign counterparties. We are faced a global crisis, and it can only be solved through global action.

Here’s the country table. The detailed bank table is under the break.


Country AIG-related payments
billions of dollars
US 43.5
France 19.1
Germany 16.7
UK 12.7
Switzerland 5.4
Netherlands 2.3
Canada 1.1
Spain 0.3
Denmark 0.2
101.3
AIG-Related Payments
Country
Bank Amount Total Country
billions of dollars
Bank of Montreal 1.1 1.1 Canada
Danske 0.2 0.2 Denmark
Société Générale 11.9 France
BNP Paribas 4.9 France
Calyon 2.3 France
19.1 France
Deutsche Bank 11.8 Germany
Dresdner Kleinwort 2.2 Germany
Deutsche Zentral-Genossenschaftsbank 1 Germany
DZ Bank 0.7 Germany
KFW 0.5 Germany
Dresdner Bank AG 0.4 Germany
Landesbank Baden-Wuerttemberg 0.1 Germany
16.7 Germany
ING 1.5 Netherlands
Rabobank 0.8 Netherlands
2.3 Netherlands
Banco Santander 0.3 0.3 Spain
UBS 5 Switzerland
Credit Suisse 0.4 Switzerland
5.4 Switzerland
Barclays 8.5 UK
HSBC Bank USA 3.5 UK
Royal Bank of Scotland 0.7 UK
12.7 UK
Goldman Sachs 12.9 US
States and Cities 12 US
Merrill Lynch 6.8 US
Bank of America 5.2 US
Citigroup 2.3 US
Wachovia 1.5 US
Morgan Stanley 1.2 US
AIG International Inc. 0.6 US
JPMorgan 0.4 US
Citadel 0.2 US
Paloma Securities 0.2 US
Reconstruction Finance Corp 0.2 US
43.5 US

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Reader Comments

Ajay

March 15, 2009 08:53 PM

What do you propose instead, that international contracts are not worth the hard drive they're stored on? Who do you suppose was rolling in the bonuses when AIG was making money in the early years of these deals, anybody other than American AIG executives? The US got most of the benefits from financial growth this decade, we're going to have pay the biggest share of the costs too. I don't think the taxpayer should do it though, no reason these counterparties can't take a haircut for putting money with the idiots at AIG, just as long as there's no distinction made between Goldman Sachs and Deutsche Bank. Also, why not go after the bonuses of the executives who OKed these idiotic contracts earlier this decade? That might pay for some of it too.

Mike Mandel

March 15, 2009 09:27 PM

The question is who is going to take the haircut, and when.

Ajay

March 15, 2009 10:02 PM

Yes, of course that is trivially the case. But you're playing up the foreign nature of the investors and essentially saying that they should take most or a bigger piece of the inevitable haircut. That's wrong and will have negative consequences in the future, as FDI will dry up as a result. I suggest you read James Hamilton's excellent post on how the govt should be handling this, if it wants a role at all: http://www.econbrowser.com/archives/2009/01/bailouts_should.html

Viking

March 15, 2009 10:35 PM

So the US taxpayers are in effect thru our bailout of AIG bailing out a bunch of foreign banks.These banks would,if not for our bailout of AIG,possibly then require a bailout from their own government,so we are in effect bailing out the taxpayers of these countries,as well,isn't that great?
As I have said in previous posts,we should have let AIG go bankrupt and everyone take a haircut,as part of the normal process.Now we have created a mess,because the government is now in a position of having to pick the winners and losers and we know how that movie is going to turn out!!The taxpayers will be left holding the bag!!

averagejoeamerican

March 15, 2009 11:11 PM

i aways thought "investing" had possible risks and possible benefits. i invested in my 401K and have lost over 50%, but i made the call and now i'm taking the lumps. whats wrong with the rest of the investing world doing the same? why do the ones that can make large investments like AIG and those who invested in them not take the hit the rest of us are? i say, if you play, you may loose. tuff s--t. NO MORE FREE MONEY TO THE LOOSERS!

Werner Winkle

March 15, 2009 11:20 PM

This is extremely bad news. The American taxpayer is not responsible, nor should they be, for bailing out banks that can't balance their books. This will only cause more pain for everyone.

David T

March 15, 2009 11:23 PM

What do you propose instead, that international contracts are not worth the hard drive they're stored on?

The contracts were worth what AIG could afford to cover. Regardlass of the nationality of the bank that failed to perform due diligence on a) what they were insuring and b) the ability of the insurer to pay, any money they recieve from AIG is a freebie courtesy of the US taxpayer.

Ronnie

March 15, 2009 11:24 PM

AIG gave the American tax payers money to Banks around the world, pay us BACK!!!!
Pay back the American Tax Payers or a revolt by tax payers will be swift and sever.............

MDB

March 15, 2009 11:26 PM

Am I missing something? Aren't the bail out funds loans/investments? I really wish the media would stop acting like these are free handouts. I'm guessing the loans/investments will have a greater return than the $400k per year we're paying Obama.

AGMS

March 15, 2009 11:26 PM

From an economic students point of view we should let the economy sink into a state in which it is able to cut away the excesses. Bailouts and stimulus's should be halted in order for the natural order in the economy to right itself. This so called depression is know where as close to the 1980's depression. The US stock market is recognizing the waste in the stimulus and is dealing with it accordingly. AS A CITIZEN OF AMERICA I WILL BE PAYING THE TAXES IN ORDER TO SUPPORT THE DEFICIT. The general populace should realize that a majority of the money used in bailouts will come from future generations such as myself.

Ronnie

March 15, 2009 11:26 PM

AIG, pay back all the money now to the American tax payer!!!!!!!!!!!!!!!!!

HP

March 15, 2009 11:30 PM

Wow... what a meaning of bailout you guys are making !! AIG owe the money to those banks, so they have to pay, whether it's france, germany or USA. It's US financial system which is gone boom.. It's like, I am bankrupt, you give me money but tells me to pay only to your relatives.

AGMS

March 15, 2009 11:30 PM

From an economic students point of view we should let the economy sink into a state in which it is able to cut away the excesses. Bailouts and stimulus's should be halted in order for the natural order in the economy to right itself. This so called depression is know where as close to the 1980's depression. The US stock market is recognizing the waste in the stimulus and is dealing with it accordingly. AS A CITIZEN OF AMERICA I WILL BE PAYING THE TAXES IN ORDER TO SUPPORT THE DEFICIT. The general populace should realize that a majority of the money used in bailouts will come from future generations such as myself.

Michael

March 15, 2009 11:30 PM

Am I missing something? Aren't the bail out funds investments/loans? At least there's a great chance of significant returns on these investments ... more I'm guessing than the $400k salary for Obama. Is anyone tracking his success? Please US media ... stop acting like these funds are gifts ...

Bob

March 15, 2009 11:33 PM

Two possibilities here, either the U.S. tax payers let AIG crumble with all the unintented consequences and ripple effects (and I don't think you want to see a failure of $1T and more...).

Or the U.S. tax payers keep AIG "alive". "Alive" being a big word as we are just waiting another AIG bailout in few weeks / months.

It doesn't matter, which country received the money, at least these European companies were on the right side of the trade and smarter compared to AIG executives. We were expecting what? That 95% would be U.S. banks or something?

U.S. governement is not bailing out Europe, especially Germany, France and even Canada, they don't need our money, they are in much less trouble than us. (Ok, maybe spain and UK are in deep trouble, but because they followed U.S. model :) ).

U.S. IS NOT the banker of the entire world, it is indirectly borrowing money from all the major countries!

It would have been funny if China was in the top receipients of AIG. People would have been even angrier, "What we are bailing out chinese?". Until some people realize that China owns a TON of U.S. tresuries and that they are actually controlling the game with their money and that we still want them to bail-out the U.S. by buying even more so the dollar doesn't go in a downward spirale.

Bipster

March 15, 2009 11:35 PM

This kind of analysis is good for headline news. It is not worth anything otherwise. AIG entered into contract, Government decided to support AIG, Any counter party that entered into contract will get the money. If AIG would have been allowed to go bankrupt, then everybody will get the hair cut.

We can have the different rules for US company and foreign company doing business with a US company.

Get over it.

don

March 15, 2009 11:37 PM

I was mad today, what with the A.I.G. bonuses and all. But I watched The Boy in the Stripped Pajamas tonight and was reminded that Hitler came to power on the wings of the Great Depression. A.I.G. seems pretty trivial to me now. I just hope that what the administration and fed are doing works.

John Don

March 15, 2009 11:39 PM

This is look like a corruption. The market should not turn back because of the AIG.

MB

March 15, 2009 11:42 PM

Off with their heads!! AIG needs to go down and a red letter next to every executive there who had a part in this mess. And by the way, any company who hires AIG employees should be considered stupid.

anonymous

March 15, 2009 11:42 PM

This is only fair. Over the past decade AIG has raked in billions of dollars coming from deals with these foreign banks. This has benefited the
American public. It's their (AIGs) obligation to honor these contracts. Too bad that it was being run by a bunch of idiots and now the burden is on American tax payers to fulfill the obligations. If we have decided to bail out AIG (America Is Gullible) then we better be fair to these foreign counter parties. All the business reasons like creditor faith and confidence etc. apart, we have a moral and ethical obligation.
This crisis is a glaring example of the greed in corporate America and the government is equally at blame for their oversight and lack of regulation. We call this a democracy ? BULLSHIT !! 95% of America is ruled by 5% of Americans and it's these greedy bastards that decide the fate of this country. I really hope that the faith masses have put in Obama brings about a revolution and brings back faith in the promise of this nation.

Mike Tran

March 15, 2009 11:43 PM

Without American taxpayer's money, AIG would not stay alive up to date. And for sure, AIG executes now are receiving unemployment insurance benefits. Now, American taxpayers are awarding failurers. Where is the faith?

jcage

March 15, 2009 11:44 PM

It is time to let that black hole known as AIG to go bankrupt to restructuring itself and eliminate all its bad debt once and for all! The problem that the people who bought life insurance and even possibly car insurance from them might lose money but it is better than to keep throwing money at AIG.

JOSIEWALES

March 15, 2009 11:45 PM

TO MUCH GOV'T IN ANYTHING IS BAD. IT DOESN'T MATTER WHAT TABLE YOU BELONG TO AS LONG IT IS NOT ON ANY GOV'T SIDE. IF THE UNIVERSE WAS A GOV'T BODY WOULD YOU CHOSE TO FLY INTO OUTER SPACE OR IS FOR SOMEONE ELSE TO DO? WHY WOULD ANYONE WANT TO THINK THAT THE BANKS/GOV'T BE TRUSTED AT THIS POINT IN THE GAME? AND REMEMBER IT'S ONLY A GAME AND EVERYONE IS PLAYING!check out infowars.com/prisonplanet.com and zeitgeist.com

DS

March 15, 2009 11:45 PM

This is only fair. Over the past decade AIG has raked in billions of dollars coming from deals with these foreign banks. This has benefited the
American public. It's their (AIGs) obligation to honor these contracts. Too bad that it was being run by a bunch of idiots and now the burden is on American tax payers to fulfill the obligations. If we have decided to bail out AIG (America Is Gullible) then we better be fair to these foreign counter parties. All the business reasons like creditor faith and confidence etc. apart, we have a moral and ethical obligation.
This crisis is a glaring example of the greed in corporate America and the government is equally at blame for their oversight and lack of regulation. We call this a democracy ? BULLSHIT !! 95% of America is ruled by 5% of Americans and it's these greedy bastards that decide the fate of this country. I really hope that the faith masses have put in Obama brings about a revolution and brings back faith in the promise of this nation.

goetz Oertel

March 15, 2009 11:49 PM

To let AIG go bankrupt was the "market system" way to go. Yes, but the incredible size of AIG and its flawed "investments" meant that its bankruptcy would have further seized up the international financial system. Bailouts are not limited to the US - the UK and the Europeans had to bail out many of their banks also - and presumably those bailouts went to counter parties around the world - including to institutions right here in the good old USofA. Bailouts are not pretty, and may be counter-productive, but protectionism on either side of the Atlantic would be unfair and make matters worse.
So - the bailouts are bad, and the flow of taxpayer funds across national boundaries is their natural consequence, like it or not.
Much more enraging than the bailouts themselves are the "bonus" rewards that are to be paid to financiers, bankers, accountants, and risk managers at AIG as reward for driving AIG into bankruptcy or worse. Shouldn't a bonus be earned through superior performance, for strengthening a company and its balance sheet, and not for bringing your company to the brink of bankruptcy and compelling it to beg for a bailout?
Even more galling: AIG management - yes, even that put in by Uncle Sam - says that it must pay the bonus billions to AIG staff "because we are contractually bound to pay". What nerve! Without bailout, AIG would have gone bankrupt, and the "contractually required" bonus payments would have had to compete with other "contractually required" demands - like those from creditors. Would a bankruptcy judge have allowed rewards for "performance" before payments on legitimate debt?? Not bloody likely. By insisting on being paid before legitimate creditors, AIG staff's demands for bonus billions seem unethical - in addition to other plaudits they may deserve for running the company in the ground. Who ever drew up the deal that now requires bonus to be paid despite the most disastrous performance in history? Who in his right mind then agreed to it? Bindingly, regardless of how poor the performance might be?
Clearly, AIG proved unable to establish a sensible compensation policy. That cries out for mandatory standards if not outright regulation on compensation, among other things. Such medicine will be bitter and unwelcome. Would it be better to criminalize greed?

CH

March 15, 2009 11:49 PM

Agree with HP.

Your figures just show that the US are the debitor of the world, not its banker.

Nuff E. Nuff

March 15, 2009 11:50 PM

Endless rhetorical econogibberish can be crafted to camouflage the irresponsibility of these underwriters. The cause of the trouble will still remain in the ridiculous bonuses paid these executives, those staggering millions that constituted a reward to individuals for making those irresponsible decisions.

By any moral standard, those personal fortunes should first be completly forfeit before the ordinary wage earner is taxed to repair the damages of this unfathomable greed.

JSmith

March 15, 2009 11:50 PM

For years, the enormous trade deficit was compensated by enormous foreign investment back into America. This lead to stable Dollar rates. So now people here are proposing we allow Foreign banks to go Kaput, fundamentally because of our housing mess and a terrible underestimation of risk by AIG (an American firm).

Great let us all show to the world how great we are a nation for investors by kicking their butts like we always have done through wars.

MARK MY WORDS - YOU LET FOREIGN BANKS FAIL BECAUSE OF OUR MESS, DOLLAR WILL BECOME WORTHLESS THAN A PEANUT.

AboveaverageAmerican

March 16, 2009 12:03 AM

OMG...taking money from your 401(k) it's by far the worst thing you can do right...BY FAR...

common people..this is the time when you actually need to think before you do something...

rozar5

March 16, 2009 12:05 AM

I think we (US taxpayer) have been swindled. This "bailout" is just a thinly disguised theft of my (our) money!

williambanzai7

March 16, 2009 12:10 AM

"I've Scammed Everywhere Man"
(I've Been Everywhere, Johnny Cash, Hank Snow)
WilliamBanzai7 Blog

I was totin' my luggage along the airport security line,
When along came a pinstriped dude with a high Louis V load.
"If you're goin' to Mayfair London, Jack with me and AIG you can ride."
And so I climbed into the jet and then I settled down inside.
He asked me if I'd seen a jet with so much financial contraband to hide.
And he said, "Listen, I've traveled n done every scam in this here bailout land!"

[Chorus:]
I've bailed everywhere, man.
I've scammed everywhere, man.
Stripped my shareholders bare, man.
I've schtupped the taxpayers yeah, man.
Oooooh derivatives I've done my share, man.
I've scammed everywhere.

I've

I've scammed in:
Reno, Chicago, Fargo, Minnesota,
Buffalo, Toronto, Winslow, Sarasota,
Wichita, Tulsa, Ottawa, Oklahoma,
Tampa, Panama, Mattawa, La Paloma,
Bangor, Baltimore, Salvador, Amarillo,
Tocapillo, Baranquilla, and Perdilla, I'm a killer.

[Chorus]

I've been bailed with:
Goldman Sachs, Credit Suisse, RBS, Merrill Lynch,
BAC, JP Morgan, HSBC, CITI, RFC, Danske Bank, Bank of M, SocGen
Dresdner, Deutsche Zentral Genossenchafts, Paloma,
Wachovia, Paribas, see what I mean-a

[Chorus]

I've scammed with
Calyon, Credit Agricole, Dresdner Kleinwort, DZ Bank,
KFW, Banco Santander, Landesbank Baden Wuertemmburg,
ING, Barclays, S&C, Citadel, Deutsche Bank, Rabo Bank yeah I've robbed a Bank

[Chorus]

I've scammed:
Pittsburgh, Parkersburg, Gravelbourg, Colorado,
Ellisburg, Rexburg, Vicksburg, Eldorado,
Larimore, Admore, Haverstraw, Chatanika,
Chaska, Nebraska, Alaska, Opelika,
Baraboo, Waterloo, Kalamazoo, Kansas City,
Sioux City, Cedar City, Dodge City, what a pity.

[Chorus]

chuck

March 16, 2009 12:12 AM

Dear fellow American, you have been screwed again. How does it feel? When will we learn? Our government has been out of control for nearly decades now. They are no longer interested in governing, only growing. The more you spend, the more you grow – whether as bailout funds or pure unveiled expansion programs. Through incompetence and greed our elected officials have mortgaged our children's future and the future security of this country.

Make no mistake, the fear of our founding fathers has been realized. It is time once again – to rise against the machine.

mitch

March 16, 2009 12:14 AM

we damn well should press france germany and england to give us the money back that these banks got from us unless in the french, english and german bailout our banks got their money. the difference should be put up by the government on the receiving end.

Gilmore Black

March 16, 2009 12:15 AM

What amazes me is the questions no one seems to ask.

If an individual sold promises that he couldn't keep, he'd lose his farm and all his chickens. Granting corporations the artifice of "personhood", monied individuals not only get bonused for organizing vast teams of promise salesmen, but they keep the cash, their farm, and all their chickens, no matter the size of promises they make or the frequency and consequence of their default.

Even if one suffers through the moronic arguments that a corporate shield is necessary for effective capital use, why has AIG (and others) been allowed to grow so huge?

Zooker

March 16, 2009 12:17 AM

How hard would it be for this website to automatically weed out duplicated posts???

GW

March 16, 2009 12:18 AM

Bob,

I was thinking that ALL of the banks be American. I was also thinking that ALL of the money given to AIG, should go to AIG and its subsidiaries. I would prefer they be allowed to fail, just as my business would be; however, the government took that option away from the market. BTW, the taxpayers have no say so in what those idiots in DC do, in case you have not realized that from the bailouts, porkulus, 80% of us wanting illegals gone, etc, etc.

downhill

March 16, 2009 12:21 AM

Goetz Oertel asks, "Who ever drew up the deal that now requires bonus to be paid despite the most disastrous performance in history? Who in his right mind then agreed to it? Bindingly, regardless of how poor the performance might be?"
Mr G, or Mr O, or could at least Mr O's spokesman, Mr G, come forward and disclaim? BTW, Mr G, my employee commented when I first showed him your picture "why he has the look of a thief?" That was really a revelation, coming from one who never read anything about you or who you are.

jim

March 16, 2009 12:21 AM

AIG is corrupt company, using bail out to have fun, and partying, and send it all over the world like their own money, who they think they are? Where is the fairness to most US tax payers whom bail them out? We are in economic crisis, why AIG still taking about those trashes binding contact for distributing bonuses, why not held those responsible for these mess to the court of law? What happened to 62 historic billion losses? What happen to prudent economic fundamental judgment to let them fail or to replace the top management, and let other healthier financial institution to run its businesses.

downhill

March 16, 2009 12:39 AM

So, those legally binding contracts to dole out retention bonus was signed in early 2008, just two months after Bear Stearns!! The gamblers (with other peoples' money) at AIG sure knew what they were doing, and surely had good foresight to cover their own behinds(though they lacked such for the big picture). Pay bonus to retain such "talents" worthy of sinking the financial Titanic? I won't take them in even as clerk! Who needs a bunch of ship-wreckers and ship-jumpers. America, you have just been one-upped again, and can't do anything about it!

Uniquely american way

March 16, 2009 01:16 AM

The penalty for globalizing American companies
is enormous for American taxpayers.

So-called American companies like AIG, Citi and GM,
operating globally are really American companies that
American taxpayers should bail them out?

It seems that bailing out them bails
out actually more foreign worker's jobs than for
Americans!

DS

March 16, 2009 02:35 AM

This is only fair. Over the past decade AIG has raked in billions of dollars coming from deals with these foreign banks. This has benefited the
American public. It's their (AIGs) obligation to honor these contracts. Too bad that it was being run by a bunch of idiots and now the burden is on American tax payers to fulfill the obligations. If we have decided to bail out AIG (America Is Gullible) then we better be fair to these foreign counter parties. All the business reasons like creditor faith and confidence etc. apart, we have a moral and ethical obligation.
This crisis is a glaring example of the greed in corporate America and the government is equally at blame for their oversight and lack of regulation. We call this a democracy ? BULLSHIT !! 95% of America is ruled by 5% of Americans and it's these greedy bastards that decide the fate of this country. I really hope that the faith masses have put in Obama brings about a revolution and brings back faith in the promise of this nation.

Mike Mandel

March 16, 2009 03:54 AM

Folks, your comments are going through, even when they look like they are not! Sorry about the blank page problem--we are looking into it.

M.G. in Progress

March 16, 2009 05:31 AM

Mr. Liddy emphasized that AIG’s disclosure of the counterparties does not change AIG’s commitment to maintaining the confidentiality of its business transactions. “Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions,” Mr. Liddy said.
I think here we need to know more about the nature of this entanglement which created systemic risk. Two questions: a) what kind of contracts and obligations were exactly honored with these payments to counterparties ? b) were counterparties managing risky positions or simply betting (that is gambling)?

Commie Stooge

March 16, 2009 06:43 AM

On May Day (1st) there should be a demonstation in front of AIGs NY HQ.
I'm even willing to go into NYC & wear my Che tshirt; and walk with a sign to protest.

Haiden

March 16, 2009 06:46 AM

This is the points from an Asian baby boomer who has received education from States :
(1)If Obama's administration can not handle the greedy and irresponsible AIG , how could we expect the States to lead the world in the coming G20.

(2)Most Asian nations are less developed than western world in many aspects , may have more corruption than western world ,but less opportunity to allow the "AIG syndrome" happen legally without goverment's effective measures to correct it in their nations .
(3)Don't be trapped by the legal system you have designed to protect the irresponsible rats of AIG , Majority American peoples' wealth is above everything .Higher system thinking is Requierd , Go to Consult Prof. Peter Sienege in MIT .
(4)American people need a " Can Do" President not just a " Can Say " one . The whole world is watching !Please bear in mind the Asian nations can formulate a self-sufficient economy zone even it means the standard of living may be backward 10 years temporary in a period of time .
(5)Don't let the stupid administration's decision ruin the smart American power what Hillary clinton has claimed . Again , The whole world is watching !

May God bless American's wisdom !

Eurydice

March 16, 2009 08:00 AM

Well, there's a lot we don't know from these numbers. We don't know if these payments were the full amount owed under the counterparty contracts or some discounted amount. We don't know the counterparty obligations of the institutions receiving the payments - most likely, the US investment banks had many foreign investors, as well.

The thing is that a part of investing is managing counterparty credit risk - you may be on the right side of the trade, but if you're overexposed to risk, you'll still get dinged and you should be. Also, "bailout" means there's a problem - maybe not a formal, legal problem, like bankruptcy, but a problem where legal contracts need negotiation.

Mike Mandel

March 16, 2009 09:09 AM

Eurydice

You make an excellent point. We don't know if these amounts were discounted..but if they were, the initial amounts must have been horrifying.

As to your second point. When the U.S. government is effectively one of the counterparties, and the other counterparty is a large "too-big-to-fail" foreign bank, we are talking about political negotiations rather than legal negotiations.

You know, for years, I argued that the lack of a global central bank was the biggest weakness of the global economy. I thought that the problem was going to come in the form of a run on the U.S. dollar. I never expected it would come in this form.

Chr$Yoko

March 16, 2009 09:19 AM

Pre-G20 summit is seing increased pressure and propanganda !
This article is part of it by trying to add to the Anti-European spirit that we can see in more and more of economic articles in the US and UK nowaday...

On one side, we have the "Anglo-Saxon" countries that are trying to keep their good old system alive while it is actualy collapsing at warp speed (don't you agree?). This system is based on the USD currency and forever debt generation. Good old recipies for growth ignition like reducing interrest rates will be doomed for a while simply because almost everybody is crushed by heavy debt. WallStreet and the City mess and huge destruction of value is also reducing the financial "fire power" and global influence of this group.

On the other side, we have mainly the Continental-European countries who are pushing for a deep refundation of the system and its leading currency (ie: the USD). These countries are not relying so mutch on consummer debt for growth, but have issues on gouvernment debt. Russia is now joining that group point of view with more specific BRIC considerations in mind.

What we are seing from now and until the G20 are BIG POLITICAL games between those two groups. Propaganda is just part of these.
HISTORIC TIMES my friends !
Make YOUR mind by yourself !

RAL

March 16, 2009 09:32 AM

My anger over the AIG bonuses pales in comparison to my anger over the AIG foreign bank bailout. UBS has recently been fined some $700 million for illegally aiding in the establishment of off-shore accounts for US tax evaders yet we turn around and give them $5 billion of taxpayer money. Instead, the US government should have run them out of this country!!!

This government should be worried about an AIG backlash but the focus of the backlash will be on the foreign banks. A consumer boycott of those banks (Société Générale of France; Deutsche Bank of Germany; Barclays of Britain; and UBS of Switzerland) will be the most efficient and powerful way to drive them out of this country. The idea that we are having to pay off the European banks with American taxpayer money for their having taken enormous, irresponsible risks on shaky derivatives contracts will be a huge motivator.

It is time for the American public to literally "bail out" of any and all banks who are taking money and abusing the taxpayer - especially from the AIG hoax. Specifically targeting those European banks should be high on the agenda.

FBEye

March 16, 2009 09:34 AM

URGENT ALERT: Did everyone read the Article LAST YEAR on 2/25/2008 which is entitled- FIVE FORMER INSURANCE EXECS FOUND GUILTY OF FRAUD, that named AIG & another? (It's the 'USA Today' Article). WELCOME TO AMERICA- IN FRAUD WE TRUST!

mlglov

March 16, 2009 10:50 AM

The point is that AIG is the single most important financial institution to support BECAUSE it is insuring the financial institutions globally.

Insurance against bad stuff is just that, when the bill comes due the financial system requires the insurance to work. The surprise at these numbers is striking in it's naivete. We keep talking about a global economy (there really isn't any such thing but thats another post) and are surprised when the consequences and interrelationships are global.

In the end we aren't bailing out foreign banks, we are ensuring that an American insurance company meets its obligations, good for the long term.

It does provide support to our requests at the G20 that the overall solution be shared and belies the argument that it is a US created problem.

Jeff B

March 16, 2009 11:00 AM

Folks: Hello? AIG is among the largest GLOBAL financial firms in the world. Who did you think they owed all that money to, the First National Bank of DeMoine Iowa?

Bobby

March 16, 2009 11:06 AM

Why are there so many idiots calling others idiots when it is obvious they know very little about why there were failures in our financial system. However,I'll waste some of my time to point out that bonuses are promised at the start of any current year for writing so much business and they should be honored, if so ordered contractually.
Covering the complex nature of derivatives will not be mentioned here and would most likely pass over the heads of those only interested in symbolism!

Bobby

March 16, 2009 11:14 AM

Why are there so many idiots calling others idiots when it is obvious they know very little about why there were failures in our financial system. However,I'll waste some of my time to point out that bonuses are promised at the start of any current year for writing so much business and they should be honored, if so ordered contractually.
Covering the complex nature of derivatives will not be mentioned here and would most likely pass over the heads of those only interested in symbolism!

mhd

March 16, 2009 11:23 AM

I get the part about AIG having to make good on the insurance contracts. I don't really disagree with that part. When it comes to the bonuses paid to AIG employees...as a taxpayer, I feel like a complete sucker and I also feel that we are being led by some very gullible bureaocrats. It blows my mind that anyone with the authority to approve bonuses would even consider it. This needs to stop. I keep reading about the loss of "talent" if these guts aren't paid. Let them quit. They're really not that smart anyway.

Mahagwa

March 16, 2009 11:26 AM

When all is said and done, the Bush admin will go down in history as the most corrupt administration ever..First, Cheney and his no-bid Haliburton contracts, then Paulson and bailing out Goldman Sachs...wow, this makes 3rd world dictators look like Saints..
On another point, come to think of it, suppose we took that $750 Billion and set up a whole new set of financial insititutions, an entirely new financial system...a system that would act as an intermediary in providing these funds ($750 Billion) to businesses and consumers who would in turn use them for PRODUCTIVE capabilities. Suppose we decided to simply let the Goldman's, and the AIGs, and the Citi's and Bank of America's and others simply fall to the wayside---We could effectively re-start the US economy...I mean, they say that's what the bailout is for..to get these banks lending again, but hell, they are not lending, so let's simply scrap the trash (which is the existent financial system-- forget Europe and Japan, let them figure out their own mess), and rather than give another penny to any financial institution (which will only end up as bonuses to some exec), set up a whole new system...it can be done and it will be a whole lot more effective

Strategery

March 16, 2009 11:34 AM

AIG should deny the bonus payments. Let the executives try to sue them. No judge would be corrupt enough to rule in favor of those denied a bonus.

Mike Mandel

March 16, 2009 12:59 PM

The bonuses are outrageous, but to me they are kind of a red herring. The real issue is whether we have a good way of allocating losses globally.

FC

March 16, 2009 01:24 PM

AIG should list all the executives names so the public knows who the bonuses went to. The government owns 80% of AIG. So the government should "vote" in a new board of directors and ceo and then have them fire every employee who drove the company down. Then the government should tell the IRS to do a personal audit on all those employees for the past 10 years. If any of them should have even a typo on their tax returns, then they should be charged with tax evasion and jailed.

The same thing should happen in fannie mae and freddie mac

MM

March 16, 2009 01:47 PM

Question for Mr. Mandel

Do you know if these payments were to entities holding the obligations as payees, or were any of them second party "bets"? Is there any way to determine this differentiation in payments, which seems a most important issue.

dean

March 16, 2009 02:40 PM

I could use 150 million to put some people to work here in la. I would even pay it back.

nealaustin

March 16, 2009 02:45 PM

http://online.wsj.com/article/SB123720964130241001.html

check the bonous

nealustintech

March 16, 2009 02:48 PM

check out the bonous
http://online.wsj.com/article/SB123720964130241001.html

Peter Assael

March 16, 2009 03:14 PM

Point to remember, IF the US FED/Government did let AIG fall, in effect due to lack of funds, then the following would most certainly happen.

1. All investment Banks would have to close ASAP, as counterparty risk is in effect spread across most banks of these banks.
2. Retail Banks would have massive defaults on the books from INvBank's, Hedge Funds and Funds of Funds, even bondholders forced into fire sales.
Hence, many would be insolvent in no time.
3. Normal banking operations in US would reduce by double digits.
Oversea, UK, France Germany and many large EU countries would find banking operations grinding to a halt. Smaller EU's would be broke and the IMF could not help them quickly. The amount is not the only story, but the fact that other counterparty contracts, bonds etc would wind up within days in default!. The Net worth of most Banks would be (if you can even imagine it) zero or smaller than a soletrader/SME. In the panic EU gov's would not cope and complete financial chaos would be here for many years in the "All new Banking Circus". Credit lines/Loans/Overdrafts and plastic would be like mortgages transactions a mere shadow of the past.
4. Cash would be king... but most would not be able to get it in sufficient large amount from banks. Financial grid lock, banks/Gov would put limits on withdrawals!, and many loans even mortgages (BTL would go first) would be called in. So letting them fail, is not an option and politicians would only be accused of not doing enough, assuming they were not lynched first. Before being kicked out of office, which is what would happen within months. It's a bit like if the mortgage company really ticked you off.. Yes you could say up-yours truly and hand the keys back.., but you really wouldn't want to do it on second thoughts!, because the repercussions would be so bad for Family, belongings, work etc.., letting them fail would be worse than that, many business would have a 3 day a week or shut for weeks at a time. If they are to big to fail, now is the time to say they are too big and we owe it to the next generation to really scale these companies down and break them up.

Gary

March 16, 2009 03:20 PM

Ain't It Grand to be an AIG executive?
The irony about this whole matter is that AIG wants to retain the people who made the bad decisions which resulted in it needing a bailout. If these same geniuses stay on, isn't it likely they'll make more bad decisions in the future?
Its a mad, mad, mad world.

Loni

March 16, 2009 03:47 PM

O. M. G.

BCR

March 16, 2009 03:53 PM

Ad to top it off, the execs in this zombie company were paid $165 million in bonuses for doing all of this. Screw Congress... TIME FOR THE AMERICAN PEOPLE TO CALL THE NOTE ON AIG.

Peter

March 16, 2009 04:08 PM

I don't see why the calamity. AIG owed these people their money, it wasn't necessarily "invested" money. Basically this is a world market, many non-american tax payers will be paying U.S companies. This is a global problem, not just a U.S problem. The U.S is in much better shape then some others, and we are apart of a global business world, we need (the rest of the world) them to help recover for us (Americans) to recover. Stop the protectionism!

Mike Mandel

March 16, 2009 04:23 PM

Peter:

Yes, "AIG owed these people their money"--but only if it wasn't bankrupt. If the company had been allowed to go bankrupt, then AIG's creditors would have been forced to take a deep haircut, like Lehman's creditors.

The only reason why that didn't happen was because the government stepped in and gave the company an extraordinary amount of money....extraordinary.

Should the creditors of AIG benefit because th size of the obligations to them created systemic risk?

John Kilbuck

March 16, 2009 05:18 PM

Did our Treasury Dept. know where AIG bail-out money was to be spent? If not, they should bear significant responsibility.

TMT

March 16, 2009 05:50 PM

AIG PAID OFF BOTH PARTIES WITH POLITCAL DONATIONS IN 2008, THEY ARE UNTOUCHABLE IN ABSOLUTLY CORRUPT WASHINGTON. LUCKY THE AMERICAN PEOPLE ARE JUST SHEEP WHO WILL NOT TAKE THEIR COUNTRY BACK.

herault

March 16, 2009 06:03 PM

America packaged/sold securitised mortgage dirivatives to the banks who then insured these "tricks" with AIG. Surely other companies also sold CDS to the banks?
If AIG went bust the dollar would be vaporised....instantly.
In fact the dollar is now stronger because the foreign banks are now buying dollars to replace all their US losses dirivatives which now amount to over 500 billion dollars that were not covered by insurance.
PLUS LEHMANS losses were 600 billion dollars.

herault

March 16, 2009 06:04 PM

America packaged/sold securitised mortgage dirivatives to the banks who then insured these "tricks" with AIG. Surely other companies also sold CDS to the banks?
If AIG went bust the dollar would be vaporised....instantly.
In fact the dollar is now stronger because the foreign banks are now buying dollars to replace all their US losses dirivatives which now amount to over 500 billion dollars that were not covered by insurance.
PLUS LEHMANS losses were 600 billion dollars.

Strategery

March 16, 2009 07:28 PM

Sorry Peter, I disagree with you. When Lehman crashed, a few of the upper class panicked, but the rest of the world was oblivious to it and went about their daily lives. AIG is small in comparison to the world's economy, and I do not believe a bankrupt AIG would systematically destroy the banking industry and the world's economy. Furthermore, there is overcapacity in the financial sector, so some banks need to go under. An AIG bankruptcy would have meant that foreign investors would share the pain instead of being repaid 100%. Anyone who holds an insurance policy needs to verify the ability of the company to pay out claims. $170 billion, invested in REAL industries (like manufacturing) or infrastructure would do much more to help the economy and average Americans than dumping money into the bottomless AIG slush fund.

Smartrthanuthink

March 16, 2009 07:56 PM

O.k. I am just recovering from my anger explosion over the AIG bailout billion only to learn that they paid out millions in employee bonuses. I work for a fortune 100 Company that didn't get a dime of bailout money, but our profit sharing bonuses were cut considerably from last year because our sales are down. Understanding the economy and its negative impact on our business, I didn't expect such a significant decrease, but I knew there would be some. Most bonuses are based on profit sharing, can someone explain to me why these people who drove their company into the gutter, are getting millions in bonuses??? And why isn't AIG accountable for the way they spend bailout money?

Viking

March 16, 2009 09:44 PM

This is Obama's PATCO moment!!if he doesn't handle this mess decisively,one way or another,he is finished.He says the bonuses will not stand.They better not stand!!

Stewart Prior

March 16, 2009 10:50 PM

All this feigned indignation by Washington about the bonuses paid by AIG is just another populist smokescreen. Why were no conditions placed on AIG before the monies were disbursed, and why were conditions not placed regarding payments to counter-parties? This is just another bailout of the banks without the clever acronyms.Why is it that Wall Street never has a problem with wealth re-distribution when it benefits them?
How is it that we keep hearing about the worst financial crisis since the great depression, and the CEO's of some of the largest banks are talking about how profitable they are thus far this year? Not a very hard thing to do when you get money from the FED for free, pay no interest on savings, and jack up the rates on your credit cards to rates Tony Soprano would love. Please President Obama, stop talking about the damned bonuses, how the heck is AIG going to pay back 180 billion dollars in the first place. The public is not as dumb as you think, and your faux indignation appears to be just that. AIG should have been made to go bankrupt like any other failed business, and the counterparties should not be made whole at the taxpayers expense.

mike

March 17, 2009 03:19 AM

It's time to change the face of corporate America. There should be two Boards on every corporation. A board of directors and a board of compensation,
and elected by the stockholders. They should act separately and independantly, They would be accountable to the stockholders.

I'd love to be able to raise my own salary based on poor performance.

brian

March 17, 2009 07:59 AM

This reminds me of the article written by Brian Bremner of Businessweek in 2004.
http://www.businessweek.com.mx/magazine/content/04_09/b3872070.htm
I remember the article very well, because it infuriated me as a Japanese taxpayer to the extent that my fingers trembled. I want to hear what Brian Bremner would say about American taxpayers’ money being stolen by European banks.

Peter

March 17, 2009 09:19 AM

The point I was making is...they didn't go bankrupt. Thus we still have to make the payments. Yeah it sucks. I'm assuming AIG wasn't allowed to go bankrupt because what it would have done to those with AIG insurance and other AIG products within the U.S (as well as abroad)

Even Paul Krugman said that AIG had to be bailed out. (http://krugman.blogs.nytimes.com/2008/09/29/bailout-questions-answered/)

He finishes by saying ,"So that, I think, is why it had to be done this way. I don’t like it, and I don’t like the plan"

That being said, we still have to make the payments regardless of the country, and like it or not we are taking the risk.

Brian Bremner

March 17, 2009 10:57 AM

This is Brian Bremner of BW responding to a previous comment by online user, Brian…

Greetings Brian,
The BW article you mentioned was about the anger inside Japan a few years back regarding the big windfall foreign investors (namely Ripplewood) made in the bailout of Shinsei Bank, the successor of the failed Long Term Credit Bank of Japan. I wrote at the time that the outrage, though understandable, was misplaced because in the end a viable bank emerged from a busted one. So what do I think about AIG funneling US taxpayer dollars to counter-party banks abroad? Of course, I don’t like it, but the alternative of letting AIG collapse and possibly triggering a systemic train wreck in the derivatives and credit markets doesn’t thrill me, either. What I suspect angers Americans most in this case is that AIG and the Fed until this week wouldn’t disclose where the taxpayer money went. Most Americans, however, probably don’t have an allergic reaction to more foreign investment in the US banking sector if it would help stabilize things. In Japan, I think that is less welcome. Best, Brian Bremner

Peter

March 17, 2009 02:32 PM

ptboy - Tuesday March 17, 2009 02:05PM EDT
I just love our so-called leaders in the Senate and House that berate AIG for handing out tax payers bailout money for bonuses to what they deem to be incompetent employees at helped create the mess at AIG. How about those same SOB's explaining how they warrant automatic pay increases from those same tax payers for the incredibly incompetent handling of the people's business! I am sure if they had the guts to ask us tax payers if they deserve their guaranteed raises (voted by themselves in complete privacy) they would get a resounding NO! This is the perfect way to deflect the fallout of their salary increases, from these so-called leaders, to employees that have received bonuses using our hard earned money. This stinks but it goes both ways.

Joe Cushing

March 18, 2009 12:53 AM

What would happen if we let AIG go bankrupt now? What if we stopped the cash infusions. The haircuts would be a lot less.

Holly

March 18, 2009 12:51 PM

Note to Fellow citizens
The man that owns the bank below has known Obama his entire life. Obama's Grandma Dunham worked for him as a Vice President of the Bank of Hawaii
When are you going to wake up and realize with have been had!

BNP Paribas 4.9 France

Holly

March 18, 2009 12:51 PM

Note to Fellow citizens
The man that owns the bank below has known Obama his entire life. Obama's Grandma Dunham worked for him as a Vice President of the Bank of Hawaii
When are you going to wake up and realize with have been had!

BNP Paribas 4.9 France

HOUSTON

March 18, 2009 08:18 PM

I AM MAD AS HELL, I HAVE WORKED ALL MY LIFE AND INVESTED IN MUTUAL FUNDS AS OUR SMART GOVERNMENT SUGGESTED, FOR A DECENT RETIREMENT. I AM RETIRED AND HAVE LOST 3/4 OF MY RETIREMENT FUNDS. I WILL HAVE TO WORK THE REST OF MY LIFE IN ORDER TO EAT.

WE HAVE STUPID IN THE WHITE HOUSE. WE HAVE STUPID IN CONGRESS AND IN THE SENATE.

MAXINE WATTERS AND BARNEY FRANKS SHOULD BE LOCKED AWAY FOR LIFE. NO THEY SHOULD BE HUNG ON THE STEPS OF WASHINGTON.

IT'S TIME TO HANG ALL THE CROOKS IN THE WHITE HOUSE AND CONGRESS. I SAY AGAIN HANG THEM.

SCANDAL

March 18, 2009 09:37 PM

No wonder MERKEL and GERMANY don't want to help Hungary and pay as European Union to help them with their problems, German banks got help from... the USA!!! Germany is saying: we don't need big spending. Why would they need it, the USA will pay for them!!! GIVE THE MONEY BACK TO THE USA!!!! SCANDAL!!!

rdsnack

March 19, 2009 03:18 AM

What does Michael Mandel want to tell us ? I see figures mixed with assumptions and nothing concrete .
This article could make sense if we knew what the figures correspond to. But it doesn't .
So how can we know it is fishy ? AIG is insurance therefore there is a lot of international transactions anyway.
Even if we suspect AIG is fishy and the bailout stinks there is nnothing remotely factual in this article to substantiate it.

This article is meaningless . Such "arguments" would not hold 10 minutes in a trial . I would have expected better from BusinessWeek, I expected something substantial and objective at least.

JJF

March 19, 2009 07:22 PM

Maybe they should call this "WEALTHCARE" since only the wealthy are going to actually benefit from this Ponzi Scam.

justdoit

March 20, 2009 07:13 AM

This is summed up by one word: Insurance. I don't agree with the bonuses, and I don't agree with the default insurance scam, but it's Insurance. How would we like it if the insurance companies starting falling...?

Charles

March 20, 2009 12:39 PM

Doesn't the federal government know what a multi-national company is all about. Why does the US taxpayer have to bail out a multi-national company? At the very least, the strings that should have been attached would forbid AIG to transfer of US taxpayer funds to foreign insurees, rather let the German, French , etc., governments transfer their own funds to AIG to cover those respective payments if those payments are to be made. Else, let AIG file for Chapter 7 or 11. I firmly believe that foreign funds would be made available to supplement US funds if the only option would be bankruptcy for AIG. The US taxpayer is not the world's banker or the world's benefactor!

Jef

March 21, 2009 02:47 PM

Americans please...take "international money", but dont want to pay out to international clients...

Yeah...thanks

The Resistance

March 21, 2009 11:26 PM

These Bailouts stink!! Except fot GM Chrysler. WE need our manufacturing. This nation has been sold out on illegal immigration and manufacturing that has been sucked out of this nation from the Globalist Corporate puppets both Democrats and Republicans strengthened our long time enemy China.
The first wrong was of 1913 with the Federal Reserve and its been downhill since. Our open borders have brought in gangs and drugs.
Its simple, your country is not the whole world. Your whole world is your country. Your people are the whole world of your country.

Doubledown2x

March 22, 2009 01:41 AM

Yes, folks,it's true for those of you who believed any of Obama's never-ending, scripted Tele-promTer talk: you've been HAD. And, this depressing news comes to you from a FORMER democrat!

Understand that Obama's goals for this country are far different that ours. Also understand that all of the things Obama is doing right now were apparent before the election even though Obama spent most of that 2-year period trying to conceal his true self, motives and goals. You can't come to the table with ANY pre-conceived notions or assumptions when dealing with Obama. For example, the fact that Obama is a registered democrat is merely a front.

Obama came to Washington with the intention of exploiting an already weakened economy. The idea all along was to divest the United States of America of its wealth and to redistribute that wealth accordingly. Obama found luck in this weakened economy and wasted no time using it to his advantage.

Also, please don't kid yourselves about Geithner. Obama NEEDS Geithner BIG TIME. Alternatively, Geithner is not singularly responsible. Geithner is closely aligned with Obama and acts at Obama's request. Obama along with Geithner, Emanuel, Axelrod, Bernacke,and others constructed this plan at a meeting that took place well over a year ago. Goldman Sachs and AIG were also present at that meeting.

Regardless of the above, don't believe for a minute that Obama didn't know about any of this because Obama, alone, signed off on it all. The only "victim" (if there is one) is Senator Dodd because it was Dodd that tried to strengthen the language that would hold AIG accountable. But Obama, through Geithner, decided that Dodd should take the fall for their own actions. The only thing I don't know at this point is whether those AIG bonuses were constructed to reward certain AIG insiders for their "roles" in Obama's game plan prior to his taking office.

Yes, I am serious about what I have written and understand the colossal ramifications of Obama's actions - even thus far. I was unsuccessful even though I worked very hard pre-election to ensure this did not happen. Obama's backing by numerous billionaires means that it will take ALL of us, grouped and working together, to make it stop.

TKO Services

March 22, 2009 12:48 PM

Hasn't anyone ever wondered why the U.S. Government bailout AIG so fast? It is because AIG insures the U.S. Government's Retirement. We, the people, should demand that ALL Federal employees be required to accept Social Security for retirement. Then watch how fast Social Security gets fixed and upgraded.

Blue Collar worker

March 24, 2009 05:24 PM

Let these companies fail and get those CEO's on the unemployement lines like the rest of the US. These people should be fired and assests frozen till the tax payers dollars are paid back, it's our money, not theirs. Way to go government, another bad move!

jose

March 29, 2009 12:56 PM

Goldman Sachs is sitting on about 100 billion in cash. Goldman Sachs has repeatedly indicated they have no material exposure to AIG. The only conclusion that can be drawn from their 13 billion dollar payment from AIG bailout money is that it came from CDS 'bets' that went Goldman Sachs way. In other words, they profited from the malaise in the financial system. Their bonuses is all that really matters. Many Wall Street firms appear to function in a manner akin to a parasite. A parasites only motivation is self preservation. There is no consideration for the health of the host organism. In many cases the host eventually succumbs. The host, in the case of United States, has been put on life support as other countries continue to buy our debt - piling it on future generations. Thing is, the parasite is still threatening the host.

Solution: Got to get rid of the parasite. Cut off the blood (money) supply.

Zamfir - Master of the Pan Flute

April 5, 2009 11:54 PM

WoW! Nice work!

Holocaust Gaza

April 6, 2009 05:37 AM

AIG had to pay this according to their contracts. Some native Americans think that is wrong? Hmm, what if foreign banks wouldn't pay what is due?

Oh, yeah - we are special.

Martin Weiss

April 6, 2009 02:25 PM


Economist: US collapse driven by 'fraud'; Geithner covering up bank insolvency
Stephen C. Webster
April 4, 2009


In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.

But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.

The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.

Black's most recent published work, "The Best Way to Rob a Bank is to Own One," released in 2005, was hailed by Nobel-winning economist George A. Akerlof as "extraordinary."

"There is no one else in the whole world who understands so well exactly how these lootings occurred in all their details and how the changes in government regulations and in statutes in the early 1980s caused this spate of looting," he wrote. "This book will be a classic."

But that book only covers the fallout from the 1980s Savings & Loan crisis; Black's later first-hand involvement in that scandal being the ensuing liquidation of bad banks.

"A single bank, IndyMac, lost more money than the entire Savings and Loan Crisis," reported PBS. "The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, 'We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.'"

That financial calamity, he explained, was brought about not by mishap or accident, but only after a concerted effort to undermine and remove all regulations, allowing a creditor free-for-all that hinged on fraudulent risk ratings for bad loans.

"[T]he way that you do it is to make really bad loans, because they pay better," he told Moyers. "Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.

"...This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad," he continued. "And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."

He equated the entire US financial system to a giant "ponzi scheme" and charged Treasury Secretary Timothy Geithner, like Secretary Henry Paulson before him, of "covering up" the truth.

"Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?" asked Moyers.

"Absolutely, because they are scared to death," he said. "All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, 'We just can't let the big banks fail.' That's wrong."

Ultimately, said Black, the financial downfall of the United States in the wake of the Bush years is due to "the most elite institutions in America engaging in or facilitating fraud."

"When will Americans wake up and hold the real criminals - Banksters - accountable for their actions, and pressure the government to enact systemic changes to prevent future abuses?" asked Huffington Post blogger Mike Garibaldi-Frick.

The full interview can be viewed on-line.

rawstory.com/news/2008/Economist_
US_collapse_driven_by_fraud_0404.html


moneyandmarkets.com
*check out the archives


Gazza

April 6, 2009 06:31 PM

"In effect, the U.S. Treasury and Fed have been bailing out the rest of the world, to a massive degree"

Mandel, hang your head in shame. This has to be the most dishonest, inaccurate, lame-brained commnet i have read since the meltdown became visible of the public radar-screen. You idiot.

Nam Lee

April 7, 2009 12:10 AM

Is the "counterparities" right and
appripriate in usage of English?
You come across this word in the first
paragraph.

Nam Lee

April 7, 2009 12:10 AM

Is the "counterparities" right and
appripriate in usage of English?
You come across this word in the first
paragraph.

Nam Lee

April 7, 2009 12:11 AM

Is the "counterparities" right and
appripriate in usage of English?
You come across this word in the first
paragraph.

Mike

April 7, 2009 02:42 AM

Why did the taxpayer pay UD$180billion for a 80% stake in AIG that is riddled with unending liabilities.

Should have allowed AIG to go bankrupt and bought the plain vanilla part i.e. the regulated part of business selling traditional insurance for a song. That part is still making money.

Let the bankers who lobbied (paid legislators) for being exempt from regulations because they said markets know best, face the market forces.

The Govt. subsidized the bankers in 2 ways:
1) Paid the investors too much for a company with almost unlimited liabilities.
2) Used AIG to channelise taxpayers money into the pockets of the bankers.

Why should the taxpayer subsidize the bankers who paid so much to free the bank from regulations when the banks are faced with the consequence of market forces. Let market rule without government interference. Only the market forces should decide who succeeds and who sinks.

John

April 7, 2009 03:08 AM

It is "counterparties", not "counterparities".
In this case, the counterparties are the banks that AIG has been doing business with.

bill

January 27, 2010 01:09 PM

wake up folks, QUIT BITCHING, when you people have had enough with our govt, banks, feds, treas dept and the smoked mirrors of our judges that are being paid off on the back 9 that run our court system RAPING the great people of this great country, contact me.IT'S TIME TO TAKE BACK OUR COUNTRY, (HELP WANTED) honest hard working individual with common sense and that is not for personal gain to run this country, hire people with the same traits to fill every govt making decision job pertaining to the people's well being of this country, not the govt's, banks, judges,courts or the house of reps, congress nor obama's!!. its the great people of the United States, that is who's country this is, HEY ALL YOU BAFOONS, YOUR TIME IS COMING !!!!!, GET HONEST FAST OR WE WILL GET YOU OUT OF YOUR OFFICE .

Dave Lopps

February 6, 2010 12:03 AM

So, if HSBC got 3.5 billion dollars...do I still have to pay them the 58,000 they left me with for forcing me to do a short sale on my home because they were unwilling to help me out back in 2007???!!!
What a joke!...they already got their losses covered...they should wipe off the charge-offs they gave thousands of us!!!

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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