Saturday, March 7, 2009


The WSJ reports today on the list of institutions that benefited from the first few AIG "bailouts". I guess some politicians are expressing shock over this. Why? Ironically, I posted on this on Wednesday and said, in answer to Jim Rogers saying AIG should be allowed to fail, that many of the counterparties to AIG were the same institutions that received TARP money.

Now according to this article politicians are upset. Hello, have your staff do some research and not a lot was needed. It was always obvious that the Credit Default Swaps entered into by AIG's London office were the root cause of AIG's problem. Given that, anyone who knows what CDS means knows, that means very large institutions were on the other side of the swaps and if they were entered into by the London office, that would suggest that many of them were foreign institutions.

Was it that hard to figure out? AIG was always a bailout of the financial system not of AIG itself. Isn't that why in a three period in September that Paulson and Bernake decided to let Lehman fail and not to let AIG fail? Fact is, they should have dealt with Lehman differently but I suspect that parties around the table had their own narrow self-interest in mind as opposed to the broader picture. And they got that wrong also.

Cheers, Mike

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