"A top [Fed] official, under fire for the government's rescue of [AIG], acknowledged Thursday that the aid contributed to 'moral hazard' risks by allowing some of the big insurer's trading partners to fully recoup billions of dollars tied to the firm. ... The government's help for AIG's trading partners illustrated the policially volatile decisions officials have made in the name of financial stability, pouring tens of billions of dollars into troubled firms to prevent a borader financial meltdown. ... Facing lawmaker objections, Mr. [Donald] Kohn defended the Fed's move as necessary to avoid broader threats to confidence. 'We're not so much worried about those particular counterparties,' he said. 'I'm worried about the knock-on effects in the financial markets. Would other people be willing to do business with other US financial insitutitons ... if they thought, in a crisis like this, they might have to take some losses?' ... 'It's not clear who we're rescuing--whether it is whatever remains of AIG or its trading partners,' said Senate Banking Chairman Christopher Dodd, a Connecticut Democrat. 'It's reasonable to ask why holders who would have received only pennies on the dolar for their credit-default swaps absent any government intervention would expect or deserve payments for what is essentially a bankrupt company'," Sudeep Reddy and Michael Crittenden at the WSJ, 6 March 2009.
"Lawmakers blasted state and federal regulators for dodging blame and keeping secrets after the failure of giant [AIG], which now has access to more than $170 billion in taxpayer money. ... In turns apolofetic and defensive, the regulators explained why their agencies weren't set up to oversee a company like AIG, or why the company's problems were outside of their jurisdictions. ... 'I share your concern. I share your anger,' Bernanke told the Senate Budget Committee Tuesday. ... Banking Committee Chairman Sen. Chris. Dodd, D-Conn., demanded to know Thursday which other banks had benefitted from the billions of dollars AIG has spent winding down its credit-default swap business and other relationships. ... [David] Kohn refused to say who had been made whole after deals with AIG went bad, arguing that the information would undermine what little confidence remains in the financial markets", my emphasis Daniel Wagner at the Houston Chronicle, 6 March 2009, link: http://www.chron.com/disp/story.mpl/headline/biz/6296671.html.
"The beneficiaries of the government's bailout of [AIG] include at least two dozen US and foreign financial institutions that have been paid at least $50 billion since the [Fed] 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 since September and December 2008, according to a confidential document and people familiar with the matter", Serena Ng and Carrick Mollenkamp at the WSJ, 7 March 2009.
I say bring the system down. People laughed at Ben Stein's comments about GSG, my 4 December 2007 post: http://skepticaltexascpa.blogspot.com/2007/12/bloodless-coup-continues-4.html. I didn't. All the more reason to indict GSG and its employees. If they now claim they did not understand AIG's business and make a public profession of incompetence consider the implication: GSG doesn't understand finance! Incomptence is GSG's defense to fraud charges. Indict 'em all, let a petit jury sort it out! Who? Balogna. As I read about 19 years ago in a law review article on White Collar Crime, fraud is not a "who dunnit", but a "what was done". We know who. Now it's what. Well DOJ. What are you doing about this? Chasing down nickel and dime (ugh) crack dealers?