AIG Reveals Creditors, Plans Bonuses

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As Kevin Drum notes, “AIG” (really the mostly government-owned company’s government-appointed executives) released the names of its largest counterparties on Sunday. So it looks like the Project on Government Oversight’s Michael Smallberg was right on the money when he told me on Friday: “With members of Congress from both sides of the aisle asking for the
list, they’ll only be able to avoid these questions for a limited
amount of time.”

Now we know what many observers already suspected: not only were companies receiving billions from the insurance company in what’s been dubbed a “backdoor bailout,” but some of those banks weren’t even US-based. The meat of the “backdoor bailout,” Portfolio‘s Felix Salmon writes, is in Appendix B of AIG’s list (PDF): the amounts of bad mortgage-backed securities AIG bought from its counterparties to cancel out the bad insurance contracts it had written for those very same mortgage-backed securities. France’s Société Générale got $6.9 billion, Germany’s Deutsche Bank got $2.8 billion, and Swiss UBS got $2.5 billion. Goldman Sachs, as POGO suspected, also did quite well: it got $6.8 billion. The benefit for AIG’s counterparties here is twofold: they offloaded bad assets, which improves their financial situation, and were most likely compensated for those assets in excess of what were actually worth.

POGO, which wrote the Federal Reserve last week demanding it release the names of AIG’s counterparties, was “grateful” that the names were finally released. But “it shouldn’t have taken taxpayer outrage to get them to release this information, they should have done it right up front,” says Jake Wiens, a POGO investigator. Wiens noted that prior to the release of the counterparties’ names, the main justification for secrecy was the fear that it would have disastrous effects on the financial system—potentially showing the firms in question to be in weaker condition than previous thought. Instead, the market continued last week’s rally when it opened Monday morning, “which threw their argument out the window,” Wiens said.

In the meantime, the same division of AIG that got the company into all this trouble is giving its employees nearly half a billion dollars in bonuses, the Wall Street Journal reported on Sunday. Lawrence Summers, President Obama’s top economic adviser,
says that’s “outrageous,” but AIG’s lawyers say that it legally has to make the payments. President Obama said on Monday that he was “choked up with anger” about the AIG situation. “This is a corporation that finds itself in financial distress due to recklessness and greed. How do they justify this outrage to the taxpayers that are keeping the company afloat?” Obama asked. The President says he’s asked Timothy Geithner, the secretary of the treasury, to “pursue every single legal avenue to block these bonuses and make the taxpayers whole.”

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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