Bailout Bonanza
March 16, 2009
American International Group, once one of the world's most profitable insurers, recently required around $180 billion (139 billion euros) from the US government to stay afloat amid the global economic crisis.
But the firm revealed Sunday that more than $90 billion of the bailout package was paid out to other banks, including Goldman Sachs, Germany's Deutsche Bank, France's Societe Generale and the UK's Barclays.
"Using funds from the emergency loan, financial counterparties received … a total of $22.4 billion in collateral," AIG said in a statement.
Deutsche Bank was paid out $11.8 billion in total, France's Societe Generale received $11.9 billion and the UK's Barclays was given $8.5 billion. All three banks have declined to comment on the payouts.
Campbell Harvey, a finance professor at Duke University in the US, told news agency Reuters that the funneling of parts of the bailout package to European banks may raise doubts in the US about whether the financial rescue was economically necessary.
"It doesn't to me seem fair that the American taxpayer has got to bear 100 percent of the downside," he said. "A hedge is not a hedge if you did not factor in the counterparty risk. And the US taxpayer should not be obliged to make people whole for hedges that were not properly executed."
"Outrageous" bonuses
AIG broke the news of the massive payments to banks as the Obama administration attacked the global insurer over plans to pay out huge bonuses to staff employed in the firm's financial products branch, which has been largely held responsible for the company's near collapse last year.
"The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous," White House National Economic Council director Lawrence Summers told news network CBS.
The company recently announced a quarterly loss of $61.7 billion, pushing up its net loss for 2008 to $99.3 billion.
The news came a day after finance ministers from the G20 group of rich and emerging nations vowed to step up efforts to overcome the global recession and restore global lines of credit that have seen banks suffering worldwide.
But differences on the way to achieve this remain a sticking point ahead of a G20 summit in London in April. The US and Japan are backing more stimulus spending and bailouts, while European leaders are pushing for tougher regulations as the best way out of the global economic crisis.