Court Casts a New Light on a Bailout
In spite of this punishment, A.I.G. repaid the loan in January 2011. I am not arguing that A.I.G. was an innocent in the economic debacle of 2008. But unlike its trading partners, it neither created garbage mortgage securities nor peddled them to unsuspecting investors. Its error — a whopper for sure — was not recognizing that it was the patsy at the poker table when it insured those troubled securities. Which brings us back to Judge Wheeler’s question: Why did the government do what it did in the A.I.G. deal?
An answer emerges from the material presented by Starr. Perhaps A.I.G. was treated differently because the government saw an opportunity in the insurer’s liquidity crisis: It could become an enormous taxpayer-funded piggy bank from which the government could funnel billions to a throng of teetering banks. Remember, taxpayers were growing increasingly outraged by bank rescues in fall 2008. So claiming to bail out a rogue insurer while quietly rescuing Wall Street allowed the government to channel that anger toward A.I.G. and away from the deal’s real beneficiaries.
Starr may not prevail, but it has trained the spotlight on the government’s dealings with A.I.G. in the crisis. That alone is a public service.
A.I.G. Bailout Priorities Are in Critics’ Cross Hairs
The top three recipients of money from the government related to the credit insurance A.I.G. had written areSociété Générale, a French bank, at $11 billion; Goldman Sachs, at $8.1 billion; and Deustche Bank, at $5.4 billion.
“I find it impossible to understand why we as taxpayers are bailing out foreign banks,” said Thomas H. Patrick, a founder of new Vernon Capital and a former top executive at Merrill Lynch. “If the shoe was on the other foot and major U.S. institutions were exposed to those banks, would the U.K. or the E.U. tax their citizens to pay off JPMorgan? There has to be some explanation of why we decided to do that.”