Yesterday, in Backdoor Bailouts for Goldman Sachs?, we noted that GS, as well as Morgan Stanley, Merrill Lynch, and Deutsche Bank, were all made whole on their bad bets with AIG.

That’s right, what was misleadingly described as systemic risk turned out to be in large part little more than a counter-party bailout — money for the very same people who helped cause the problem.

Only the $25 billion figure I mentioned was off by 100% — the WSJ is reporting this morning it was $50 billion dollars, almost a third of $173 billion total AIG loot:

“The beneficiaries of the government’s bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany’s Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Société Générale SA.

More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, according to the confidential document.”

Now you know why the Fed was so reluctant to reveal who the coutnerparties were.

This is a giant FUCK YOU to the American taxpayer. Isn’t there some Congressmen (besides Ron Paul) who are morally offended by the Paulson plan, which is slowly becoming the Geithner plan?  Isn’t there anything that can be done?

According to the WSJ, these are the counter-party banks paid by AIG with bailout money:

Covered Counterparties
Goldman Sachs
Deutsche Bank
Merrill Lynch
Société Générale
Calyon
Barclays
Rabobank
Danske
HSBC
Royal Bank of Scotland
Banco Santander
Morgan Stanley
Wachovia
Bank of America
Lloyds Banking Group

This is simply unconscionable . . .

>

Previously:
Backdoor Bailouts for Goldman Sachs? (March 5, 2009)

http://www.ritholtz.com/blog/2009/03/backdoor-bailouts-for-goldman-sachs/

Solvent Insurer / Insolvent Insurer (March 4, 2009)

http://www.ritholtz.com/blog/2009/03/solvent-insurer-insolvent-insurer/

Top U.S., European Banks Got $50 Billion in AIG Aid
SERENA NG and CARRICK MOLLENK
WSJ, MARCH 7, 2009

http://online.wsj.com/article/SB123638394500958141.html

Category: Bailouts, Corporate Management, Finance, Legal, Markets, Politics, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

141 Responses to “iBanks Grabbed $50 Billion in AIG Bailout Cash”

  1. glenstein says:

    @formershrink:

    In the way of supplementary evidence, a Media Matters article showing economists who felt, not only that AIG and others needed to be bailout out, but that the stimulus bill was far too small.

    So, in response to…

    >what is the evidence that allowing AIG to go bankrupt will injure taxpayers more than paying for it to remain in business?

    It’s the presence of that community of economists that I subjectively judge as being worth listening to.

  2. Andy Tabbo says:

    For me the outrage is not so much that they were bailing out counter-parties here, because we already knew that. That’s the concept of stopping a sytemic breakdown, right? The real outrage is not being straightforward and honest about the whole thing.

    Secretive dealings with bankers is the sort of thing that incites crowds….

    There have been two political phenomena that have surprised me in the last two years. The first was the Ron Paul “revolution” raising so much cash last year, especially that one day event on Guy Fawkes day. If that wasn’t a little “warning” of a growing tide of frustration from the populace, then the election of a progressive liberal with Kenyan roots who’s name was Barack Hussein should have been your hammer of the head “warning” of frustration from the ‘masses.’

    Should be an “interesting” year….

  3. ottovbvs says:

    formershrink Says:

    March 7th, 2009 at 6:12 pm
    @glenstein:

    While I appreciate your attempt to bring reason to bear on an emotional issue, I think your questioning why people are outraged misses the obvious. There is actually not the slightest mystery as to why people are outraged.

    Really, I think the rational question is the validity of the domino theory of economic collapse: what is the evidence that allowing AIG to go bankrupt will injure taxpayers more than paying for it to remain in business?

    …….Well the possessors of the evidence and the guys who’ll be held responsible (ie. Bernanke, Geithner and Summers) unlike you who can sound off with impunity have decided the evidence is compelling…..So why don’t you tell us why keeping AIG afloat makes less sense than letting it collapse…….and your qualifications for being able to make this assessment…….In the absence of a response I’ll draw the appropriate conclusions.

  4. km4 says:

    @ SS = Schutzstaffel so what banks(s) do you lamely protecting or are you just a lowlife working for Tim Geithner ?

    http://en.wikipedia.org/wiki/SS

  5. cix says:

    I’m not sure I understand the point of the article. Who else could be receiving the payments from AIG?
    I think it was obvious that those CDS had not been acquired by Joe Six Pack, when they said that AIG was too interconnected they meant that too many other financial firms would go under.
    This may be wrong or right, but honestly I don’t see any novelty in the list of recipient from the WSJ.
    What was the list you had in mind, why does this one surprise you?

  6. super_trooper says:

    @cix why should the US tax payers bail out former nazi banks? Let the Germans do that. Deutsche Bank should be bankrupt.

  7. super_trooper says:

    Getting F&*ked as a taxpayer hasn’t felt this good, and I’m expecting more, much more. Makes you want to pay more, doesn’t it?

  8. What I boil out of this is a simple question. Where is the systemic risk if you owe the money to yourself? Is that the message you are trying to get across to us Barry?

  9. glenstein says:

    @How the Common Man Sees It:

    Yes, you do owe the money to yourself, but its more like your jugalar, which is gushing blood, owes money to your hands. So your hands refuse to hold the wound closed long enough for things to get better.

  10. Stuart says:

    These Pigmen MUST be stopped. They are looting the public purse which already cannot afford it. How long is the public going to allow their futures to be raped like this. ENOUGH!! It’s time for Pitchforks and Torches.

  11. awilensky says:

    Well, I for one, welcome our Chinese overlords.

  12. vaughn says:

    Goldman Sachs
    Deutsche Bank
    Merrill Lynch
    Société Générale
    Calyon
    Barclays
    Rabobank
    Danske
    HSBC
    Royal Bank of Scotland
    Banco Santander
    Morgan Stanley
    Wachovia
    Bank of America
    Lloyds Banking Group

    This is simply unconscionable . . .

    …and actionable?
    Instead of pitchforks (do they still stock those at Home Depot?) How ’bout a boycott?
    What say ye?

  13. @glenstein Says:March 7th, 2009 at 9:43 pm

    Yes, you do owe the money to yourself, but its more like your jugalar, which is gushing blood, owes money to your hands. So your hands refuse to hold the wound closed long enough for things to get better.

    Actually, I think it is more clearly explained as owing $650 billion that is needed to settle systemic risk contracts and having 50 billion of contracts that can cancel each other out. Instead, your agents at the Fed get you the whole 700 billion in taxpayer’s dollars of which you don’t cancel those contracts out but rather pay it to yourselves anyway….probably in the form of either bonuses or little brown bags stuffed with cash.

    It is 50 billion so far of course. Where the other 650 billion – or trillion or whatever it is tomorrow – needs to go has yet to be revealed.

    And I suppose that is why they are working so hard to keep the revelations from happening. You would think if this were on the up and up they wouldn’t have a problem with full disclosure

    Do you realize that if they keep this up the mafia are going to become jealous?

  14. usphoenix says:

    @McHugh: ” In your face money grab.” CORRECT.

    Once again many are grappling with the Acceptance stage.

    For myself, I find it unconscionable that tax dollars are going to foreign interests that encouraged us into this mess. I mean, come on, there is the remote possibility we might have found happiness driving Saturns and not BMWs.

  15. kstoaks says:

    If the redneck element wishes to shoot it out with the US military, I strongly encourage them to do so. You know, for cathartic reasons and all. For the rest of us, it will free us of such voters. I’ve been for taking the warning labels off things for some time now, and letting nature take its course. Again, we’d be freed of dragging along a number of unuseful idiots.

    Now, if memory serves, the one thing that seemed to focus the minds of Paulson, Congress, et al, was when a few folks panicked a bit and began a $500bln run on the banks.

    Sounds like we need to repeat that performance, except on a larger scale. Taking our cash money away is legal, moral, and doesn’t invite military retribution. In fact, it would likely hamstring the military something fierce. Kicking down our doors over an ordinary withdrawal will probably not get them what they want. (Unless they’re looking for being internationally blackballed due to War Crimes charges).

    I have done my share. I have removed my deposits from the Federal Reserve System. I have borrowed my 401k (because our plan allows it, some don’t). They still have about $12K of my cash, because I cannot borrow it all at once. That’s a material drop, trust me. Perhaps we should do this slowly to avoid having the gate slammed shut.

    But if you are angry, take your money away from them. There’s little they can do about it. And we won’t have to listen to all that “we will not be intimidated” nonsense. You WILL TOO be intimidated if you’re standing there holding nothing but liabilities, Sheriff. So give your pistol a twirl if that’s your bent, but simply take their money away. Convert it to something they have no authority over (gold, silver, pesos, whatever), so it cannot be declared worthless.

    This can be dealt with without burning all that gas to drive to DC, only to have your head bashed in by riot police.

    Incidentally, why isn’t the transfer to foreign banks considered fraudulent conveyance?

    k

  16. It may be too late They may not need us any more) but maybe now people will seriously consider boycotting debt

    Starve the beast

  17. kstoaks says:

    @Common,

    I can’t imagine they don’t need us. (I wonder who would lead us now, if none of us would vote).

    Who will buy their bonds? Gross? Blankfein? We have $4 trillion bucks. Add insult to injury. Move it to Switzerland (and pay every dime you owe in taxes). I don’t believe a single crime, not even speeding, should be committed here. Just take the money and we’ll be able to change the name to American Idle.

    As you say, starve the beast.

  18. kstoaks,

    IOW, “Defund to Defend”

    boycotts work, it is the primary reason the MSM rails against them so..

  19. @kstoaks Says:March 7th, 2009 at 11:40 pm

    They may not. Their money circle may be self perpetuating now to the point that they no longer need the serfs to feed it with their interest payments on the debts on their houses and credit cards

    Taking your money out definitely is a way to fight back. I have done my utmost to keep as little money in cash in banks as possible for years. I am probably an enemy of the state that way. You can’t lend to debt slaves what isn’t in the account. That is actually what made me a trader. I saw that putting my money in shares was a way to keep it in the economy while at the same time earning a return and keeping it from banksters

  20. kstoaks says:

    Mark,

    I’m not sure my approach is even helpful, but its remarkably cathartic. I’m not a moron, its not in the mattress — but its not in the Federal Reserve System, either. There are alternatives, even here in Hooterville (OK, its a little bigger than that, but not much).

    As far as the MSM, I’ve counted 5 dead newspapers in a week. If they’re so damn smart, why are they joining the tent cities? I only buy a newspaper when I want to spraypaint something.

    I’m for focusing minds, not undermining the country. I’m sure Deutche Bank is a very nice bank, but it doesn’t need our capital as much as the folks in Peoria need jobs. We’ve lost track of what matters, and another massive run might panic them into doing the right thing.

    k

  21. kstoaks says:

    Common,

    If I were competent to trade the current environment, I certainly would because the volatility is very, very juicy. The options premiums must be ginormous. But this man knows his limitations, so I have no opportunity costs here.

    My retirement fund selection is a standard fare of long-only “invest for the long run” stuff. It worked like a set of twins in bull markets, but its literally useless here, so I’m in cash. I have no choice but to borrow it out and buy XOM and other inflation hedges. True, I have to pay it back, but I can borrow it faster than the paybacks. Hell, I could pay my mortgage off (but I won’t — its another inflation hedge).

    I’ve encouraged family members to spread it around in case of an FDIC screw-up (shit happens) and the ATMs go dark. But full-on panic is not my bag aim here. Just a little Come To Jesus…

    k

  22. glenstein says:

    @How the Common Man Sees It

    Maybe my analogy was inept. In any case I don’t think your comment responded adequately to what I (attempted) to point out: the fact of “owing money to ourselves” is only really true in an extremely abstracted sense- its unmistakably clear, for instance, that AIG’s obligations are not the government’s obligations. There is additionally the non-trivial argument that, in abscence of a bailout, there could be a pretty damaging collapse in demand.

    It’s also at odds with a fact being raised by other commenters- that several of these counter-parties are non-US banks. That really stretches the “owe money to ourselves” metaphor, to the extent that it lacks any real explanatory power.

  23. glenstein says:

    >AIG’s obligations are not the government’s obligations

    or rather, when AIG took them on, they as an entity were quite distinct from the government- and the counter-parties to which AIG owes money are not the U.S. government.

  24. glenstein,

    w/this: “There is, additionally, the non-trivial argument that, in absence of a bailout, there could be a pretty damaging collapse in demand.”

    we’ve been having ‘bailouts’ since ’007, at least, yet we’ve seen a ‘pretty damaging collapse in demand’..

    care to rethink your Keynesianism?
    ~~

    kstoaks,

    to your point: the World is filled w/ non-Financial assets, always has been, always will be. Often, they’re the best kind..

    and, yes, SH, is a broad category, one, unfortunately, or not, missing from too many algorithms..

  25. kstoaks says:

    Since its obvious the traders of the flock are still awake, anyone know of a decent book, blog or whatever that can explain Elliot in English?

  26. glenstein says:

    @Mark E Hoffer:

    this is just on the virge of being too easy to be worth rebutting- the financial crisis is unique in both scale in precedent, as is the corresponding possibility for halt in demand.

  27. glenstein says:

    sorry mark, I think I mistook your statement for a different one. I’ll modify by saying that the bottom is much deeper than where we presently sit, and you’ve done nothing to address the current scenario, wherein we experience economic downturns but stave off still worse via government intervention. But I’ll keep the part about this scratching the lower limits of what is worth rebuttal.

  28. Kstoaks,

    AT is the one to ask..

    glenstein,

    to unpack it some: if Debt, too much of it, is the current problem, how does more Debt begin to solve it?

    as I was alluding to, we’ve been on this road for quite awhile, how’s it been working out, thus far?

    are you, really, going to tell us that the magic # of indebtedness hasn’t, yet, been reached? and, with just a little more, things turn pink, again?

    if we’re interested in ‘staving off still worse’, serious people, or people elected to serious positions, or positions that were once thought to be serious, wouldn’t be talking about band-aids and gauze pads, they’d be acting out a whole different level of triage..

  29. @glenstein Says:March 8th, 2009 at 12:43 am

    When referring to ‘owing money to ourselves’ I was talking from the banker’s perspective.

    How is there a problem of potential systemic collapse when they owe money to themselves? I think this was Barry’s original point and what I was reiterating. Should they be paying themselves 50 billion dollars or doing the creative accounting they seem to be able to do so well, do some constructive work for once, and cancel out some of the debt they owe to themselves in return for the government stemming the mess they created? If they can’t do that then maybe that 50 biliion needs to be clawed back and some auditors can do it for them

    If that is not what he meant I stand to be corrected

  30. kstoaks says:

    Mark,

    Cool link — thank you! That’ll work.

    I’m a swing trader when I trade, but this environment is not my cup o’ tea. I’m a little short on trading brains, so I do it the easy way, and lean on the bull market. Only now, not so much, for obvious reasons.

    If it wasn’t for serious people making a serious dog’s breakfast of their elected positions, we’d likely still be in this mess. This is a banking mess that’s fast became a political mess, too. It smells like an evil cross between 1907 and 1929, in a way. The banks lent too much, grinning into their shirtsleeves thinking they had off-loaded the risk to one set of dunces, while another set of dunces were about to hand them a huge pile of assets via default, all while those assets were appreciating to moon. Rinse and repeat.

    Except the huge pile of assets morphed into a huge burning pile of margin call.

    Oops.

    k

  31. kstoaks says:

    As a computer guy that’s been hanging out around the Oil & Gas bidness down here in Tejas, banks are not the only dudes that traded their assets back and forth. The independent O&G guys seem to do this too. I see the same properties turn up in different sets of books every boom cycle, except this time they’re owned by XYZ for $40 million, rather than The Disreputable Company at $10 million. They will be written down to $1 million like they were last time.

    I guess it was real estate’s (and by default, banks) turn in the confessional. But so much capital has been destroyed in this particular cycle, my neighbors and those not fortunate enough to hear Barry’s cry of “We’ve Big Honkin’ Hit Rocks, Into Cashboats, Boys!!” are financially obliterated.

    Those high $ acquisitions are just killing some of the O&G outfits (happens every boom/bust, natch), but the ones that didn’t do anything idiotic are priced for Armageddon, so there’s (black) gold in them thar hills somewhere. Someday.

    That’s part of the reason I’m interested in the Elliot stuff. It seems to be a pretty good tool for my “hold overnight” style. I consider the markets temporary closed for trading, so I might as well hunt for the Next Great Arrow for the timing quiver. I’m itchy-fingered, but I have a deep, abiding respect for avoiding buys at the tops of Bollinger Bands (no danger of that now). Elliot seems to be able to see farther into the future than Bollinger, and help me better tell when Someday might actually occur.

    k

  32. philipat says:

    @Ottob. Glenstein………What you’re missing is that most of the posters here are suffering from either a surfeit of moral outrage or they don’t know their ass from their elbow…….Somewhat amazingly to me BR seems to have joined the guys with tar and feathers…..Perhaps he thought all the counterparties to these swaps were The Salvation Army and the Knights of Columbus (actually the latter could be since they own a large insurance company).

    The point being, Nationalise AIG and let the Hedge Fund side of AIG go. Then the CDS’s all get netted out OR defaulted on. Shame GS, FU, you created the problem. Why should the taxpayer pay GS?

  33. Ks,

    re: link no prob..

    re: erudition of some these actors on the Poli-Sci-Fi stage? big problem..

    as to allude to: The key to wisdom is knowing what you don’t know.

    with that, never hurts to understand more than one perspective, whether it’s Trading, Digging Wells, or just plain gettin’ on w/ things..

    it is interesting that you mention ‘swing trading’, from this vantage point, I’d doubt, highly, we’ve, yet, seen the Highs in Volatility..should be a swingin’ time, let’s hope not too many innocents get knocked out..

    and, as you were saying, a huge diff. ‘tween Price and Value can be found in many Markets..

    also, remember when there’s not much to Buy, there’s, usually, lots left to Sell..

  34. philipat,

    some things are too simple..\

    and, you remember the ol’ adage: “One of the most difficult things to do is to get a man to see what his Paycheck tells him not to..”

    also, remember, whether its Water, Oil, or Opinions, consider the Source..

  35. philipat says:

    @MEH

    True, BUT if we carry on like this, there won’t BE any paychecks. Anyway, I don’t need one and in any case have been short for over a year so, whilst it might be a case of preaching to the converted, I’m certainly not making new investment decisions on heresay, if that’s what you mean!

  36. Greg0658 says:

    driven by the CBS SundayMorn piece on Multiple Personality Disorder …..
    doctor A it exists .. doctor B its a planted notion .. HercshelW dont tell me . dope . I had/have it

    I wonder what the landscape would look like in a world not driven by the need for cash ….?

    and another
    worth a minute of your time “Long Now Foundation”

    would Rap have flouirshed?

  37. philipat,

    Well, I was alluding to those who don’t get: “The point being, Nationalise AIG and let the Hedge Fund side of AIG go. Then the CDS’s all get netted out OR defaulted on. Shame GS, FU, you created the problem. Why should the taxpayer pay GS?”

    or

    “What you’re missing is that most of the posters here are suffering from either a surfeit of moral outrage or they don’t know their ass from their elbow”

    but, this “I’m certainly not making new investment decisions on heresay”, never hurts, either !~

    and, this: “if we carry on like this, there won’t BE any paychecks.” is w/o question.

  38. farmera1 says:

    Barry, there is a great article in the January 19, 2009 FORTUNE magazine that is well worth reading about
    AIG. After reading it would be interesting to hear your comments.

    AIG: THE COMPANY THAT CAME TO DINNER

    http://www.insurancenewsnet.com/article.asp?a=top_news&id=102152

    My take away from the article (agree or not) is that the government had no choice but to funnel money to AIG. The article is a little dated but still very much on track IMHO.

  39. Greg0658 says:

    next in tube lineup .. Face t’ Nation .. GOP John Boehner seems to have lost his color sense .. blue tie and no flag pin

    I’m guessing ya can’t wear the WTO rgb pin colors just yet and red ties are out this year (camo is out too) … I like the technicolor ties myself

  40. slickdawg says:

    Doug, violence will not, unfortunately, resolve the situation. Americans are too damned stupid to do anything. Politicians do not fear the voters, nor do they respect them. They feel that it is their sovereign right to stay in office as long as they please, and screw us over as much as they want. I thought Bush had gotten way out of control with spending. Obama comes in and deliveres the change he promised, over DOUBLE the budget Bush had, even in war.