As reported earlier today, AIG — which is already 80% owned by the US government — is poised to go back to the government trough for more money.
(Remember, we’ve already committed roughly $150 billion to AIG.)
So I want to come back again to this question: who are the counter-parties? When we pour $10 or 30$ billion into AIG, it doesn’t vanish into thin air. It goes to someone else. Earlier evidence suggested that Goldman Sachs had massive exposure to a potential AIG bankruptcy. And it’s been alleged — though not on any harder evidence than a certain elementary logic — that AIG got saved in part because of people tied to Goldman who were running Bailout Inc. last fall.
Whatever the truth of that, I think it’s time we know more clearly where the $100 or so billion we’ve ‘loaned’ AIG so far went. (There’s been some data on this. But I don’t believe it’s been exhaustive or particularly detailed.) And where’s the next dollop of money likely to go? Whoever these recipients are, they are by definition companies that are in the capitalism business who made a bad bet on AIG, probably a lot of bad bets on AIG.
Perhaps there are good systemic risk arguments about why these players need to be made whole. But like I said, in the capitalism business, so it seems like they should take at least some big hit for having deals outstanding with a company that in essence went bankrupt (though we’ve kept them on life support too). It really is a zero sum — your money to AIG, so that ‘AIG’ can make this or that bank or investment house whole. Maybe there’s a good argument. But I think we need a lot more data about who’s ending up with the money before we know.
