The Tally Stick

Taking measure in our times

AIG bailout money is actually going to bail out foreign banks

without comments

This morning I was watching “The McLaughlin Group” and they fully admitted was I have thought for a long time.  That while the public is outraged about the $170 million in bonuses, we are missing the major issue that our taxpayers dollars are going via A.I.G (American International Group) to bail out foreign banks that AIG made insurance bets with.  This is where the real outrage should be, we are squabbling about $170 million when we have sent $180 billion through AIG alone.  The question I ask is “Why don’t these foreign governments bailout their own banks?”

More and more I am seeing a trend that is taking place, I have noticed that articles that talk about the bailout money.  When you see them talk about a bank getting more bailout money, you will notice they mention the reason for these losses is “subprime mortgages” and “other assets” or “bad/toxic assets”.  This in my opinion is the codeword for all these off-balance-sheet derivatives that have come due and now to keep the small amount of trust left, we are making these contracts good.   The problem I see is that according to the Bank of International Settlements (BIS) report, we have $596 trillion dollars worldwide (2007 numbers that came out in 2008).

Now all these are not going to go bad at once but the problem is the U.S. policy seems to “bailout first and ask questions later”.  This policy is not going to work because investors will not fully trust the financial system until the bad players go bad and good players get rewarded.  Right now, its any-ones best guess.  They keep changing the rules when it best suits whatever populist notion is convenient for whatever interest group can complain the loudest.  I think the government will prevent a depression / deflation but the cost I believe will be a rate of inflation we have never seen in this country….ever.   Will it worth it?  I would rather see prices come down then go up but that is me.  Here is what the National Review said about the AIG bailout:

National Review (No Affiliation or broad support of opinions):

The whole AIG story is an outrage.

What’s more, AIG is acting as a conduit for taxpayer money that is being sent to dozens of derivative counterparties, including foreign banks and American banks like Goldman Sachs. If we’re going to bail out all these other firms, why not bail them out in full taxpayer view? Why is the money being laundered furtively through AIG? And where exactly is the end game for AIG? How are the taxpayers going to be repaid?

And what is Treasury man Geithner’s role in all this? He appears to be the biggest bungler in what has become a massive bungling. My CNBC friend and colleague Charlie Gasparino thinks Geithner can’t survive this. I am inclined to agree.

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Written by Tally Stick

March 22nd, 2009 at 11:21 am

Posted in Commentary

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