Foreign Banks Reaped the Rewards From AIG Bailout, Says Watchdog

That's just one example of how how the billions that the Treasury poured into the economy also bailed out foreign banks [1], according to a report released on Wednesday [2] by the Congressional oversight panel. The report detailed how through Goldman Sachs, significant portions of the $70 billion that the Treasury committed to bailing out AIG has ended up in the hands of foreign investors. From the report:


Taxpayer aid to AIG became aid to Goldman, and aid to Goldman became aid to a number of domestic and foreign investors. In some cases, the aid was in the form of repayment in full of obligations that, without government help, could have ended in default.

As the Wall Street Journal noted last week ($) [3], significant questions still remain about how Goldman calculated how much cash [3] it was owed by AIG for its bets against the risky collateralized debt obligations that precipitated AIG’s collapse. (Goldman in a memo to regulators, responded, "We believe our marks were accurate," but acknowledged that "a certain degree of judgment was necessary.")

As it turns out, many foreign investors also took the same bets -- with Goldman as the middleman -- that called for such payouts. Those investors also took home billions when the Treasury bailed out AIG. Though the report calculated that foreign banks received $14 billion in bailout funds through Goldman, previous calculations of what they received in all [4]-- and not just through Goldman -- were around $58 billion [4].

And that's not to mention the credit default swaps that Goldman Sachs took out to protect itself in case of AIG's failure. According to the Congressional oversight panel's report, when the U.S. government rescued AIG, it spared 87 companies -- about half of which were foreign -- from having to pay out insurance money to Goldman that they would've had to pay if AIG had been allowed to fail. Late last month, Goldman handed over a list of these companies to the Congressional oversight panel and the Financial Crisis Inquiry Commission. According to that list [5] (PDF), which was released by Sen. Charles Grassley, R-Iowa, Goldman stood to receive $1.7 billion in payments if AIG had defaulted. (The panel's report suggests that the correct number may have been $2.8 billion.)

Read on from Propublica.