The Special Investigator General for the Troubled Asset Relief Program issued an audit report last week. The paper — "Factors Affecting Efforts to Limit Payments to AIG Counterparties" — goes 47 pages to explain why the Federal Reserve and its good friend the Treasury threw tens of billions of dollars at one of the leakiest money buckets in world history: American International Group, Inc.
Gretchen Morgenson, over at NYT, wrote about the SIGTARP's findings on Saturday. She beamed her flashlight on whether Goldman Sachs fibbed when it said — a bit huffily — that it never faced any "material" danger from its "credit" exposure to AIG. The reason Ms. Morgenson misdoubts GS's stance? Because, but for the Fed's squirting fire hose-o'-cash, AIG would've collapsed, the market would've gone with it, and all those "hedges" that GS so cleverly bought itself would've proven less than solid. Ahem.
Blawgletter has more questions, though. These include:
- "Factors Affecting" treats AIG, the parent, with American International Group Financial Products, a sub that sold hundreds of billions of credit default swap insurance, as the same outfit. If AIGFP sold a CDS, AIG somehow had to make good on it. Huh?
- We know that Congress exempted CDSs and other derivative products from the main effect of a bankruptcy filing — the automatic stay. No longer may creditors grab collateral, demand payment, and do other things to collect on a debt from the bankrupt. So, a filing by AIG wouldn't have stopped GS, et al., from picking AIG's bones clean, right? Why didn't SIGTARP mention that?
- Thanks in part to Congress's decision to PROHIBIT rules that might prevent CDS excesses, AIGFP and others sold CDSs to pure gamblers — people who didn't need insurance against loss on a bond or other debt obligation but who desired to bet that things would go badly for the owners of the investment. How much of AIG's CDSs fit into that category? How many billions in federal cash went to those folks? Why?