By John O'Callaghan and Lilla Zuill John O'callaghan And Lilla Zuill
WASHINGTON/NEW YORK (Reuters) – A large portion of the taxpayer money spent to rescue insurer AIG was passed on to Goldman Sachs and several European banks, who were among the major beneficiaries of more than $90 billion in payments in the first three-and-a-half months of the government bailout, AIG disclosed on Sunday.
The revelation was another public relations nightmare, coming on the same weekend that the Obama administration expressed outrage over American International Group Inc's plan to pay massive bonuses to the people in the very division that destroyed the company by issuing billions of dollars in derivatives insuring risky assets.
AIG, an embattled insurance giant that has received federal bailouts totaling $173 billion and is now paying $165 million in employee bonuses, is at the heart of a global financial crisis that President Barack Obama is trying to address with plans for trillions of dollars in spending.
As part of those efforts, Obama will announce steps on Monday to make it easier for small business owners to borrow money, officials said.
But the revelations that billions of U.S. taxpayer dollars were funneled through AIG to Goldman Sachs -- one of Wall Street's most politically connected firms -- and to European banks including Deutsche Bank, France's Societe Generale and the UK's Barclays was likely to stoke further outrage at the entire U.S. bank bailout.
While the payments were not illegal, the fact that billions of dollars given to prop up giant insurer AIG were then transferred to European banks and Wall Street investment houses could raise new doubts about whether the rescue was really economically necessary.
Goldman Sachs, formerly led by Henry Paulson who was treasury secretary at the time of the original AIG bailout, could not immediately be reached for comment. Deutsche Bank and Barclays declined to comment.
moreMon Mar 16, 2009
By Lilla Zuill
NEW YORK (Reuters) - Goldman Sachs (GS.N) and a parade of major European banks, including Deutsche Bank (DBKGn.DE), France's Societe Generale (SOGN.PA) and the UK's Barclays (BARC.L), were major beneficiaries of more than $90 billion of money paid out by AIG in the first three-and-a-half months after its bailout by the U.S. government last September.
The disclosure by AIG on Sunday is likely to trigger further criticism of why Goldman, with its many government links, and the European banks were funneled such huge sums of U.S. taxpayer money after making bad bets on various securities, as well as strengthening the case of those who believe the whole bailout was botched.
Already this weekend AIG has come under intense attack by politicians for bonus payments it made to executives and staff for last year's performance despite its near-bankruptcy and rescue.
Through three separate types of transactions, Goldman received an aggregate $12.9 billion. Among European banks, SocGen was the biggest recipient at $11.9 billion, Deutsche got $11.8 billion and Barclays was paid $8.5 billion.
The payments include the provision of collateral to back up credit default swaps, a form of financial insurance that AIG was writing; the purchase of the collateralized debt obligations, a type of complex debt security that underlay that insurance; and payments to counterparties of a securities lending program.
moreFolks at both the Fed and Goldman Sachs need to explain the discrepancy between the firm's comments and the firm's official level of AIG exposure. Over and over again, throughout this process, the bank has said its exposure to AIG was "hedged" or "immaterial".
Here's what they were saying last September, via
Reuters (9/22/08):
Lucas van Praag, a Goldman spokesman, on Sunday said the Times article was wrong to suggest that Goldman had reason to be concerned about AIG's problems.
"Although we have said many times on the record that our exposure to AIG was, and is, not material, the reporter chose to pursue a story line which suggests, by innuendo, that is not the case," he said in an e-mailed statement.
"For the avoidance of doubt, our exposure to AIG is offset by collateral and hedges and is not material to Goldman Sachs in any way," he continued. "The conclusions about our interests that readers of the New York Times article are invited to reach are seriously misleading."
They made similar noises in just the last few weeks.
And now we learn officially last night that Goldman got almost $13 billion. We've discussed ways the bank may have had some exposure hedged, though in a way it doesn't matter since it doesn't take away from the fact that the bailout orchestrated by its former CEO had a major positive impact on the banks finances. $13 billion in payments is $13 billion, even if that risk had been hedged. Obviously Goldman had "interests."
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