Bloomberg: The Real AIG Bonus Scandal

Bloomberg News has a great story today on how the government’s AIG bailout not only preserved those infamous $165 million in bonuses but also billions more at its bailed-out counterparties, including foreign banks.

Basically banks like Goldman Sachs and Merrill Lynch bought billions of dollars of insurance from AIG on their junk bets. AIG goes essentially bankrupt and wouldn’t have been able to cover those bets without the government stepping in. Government steps in and covers those bets at a hundred cents on the dollar because it worries (correctly) that failing to will set off a chain reaction of bankruptcies and crippling losses. Banks are able to continue to pay billions of dollars in bonuses.

Reporters Mark Pittman (subject of an Audit Interview last month) and Christine Harper put this in context in a great, straightforward lede:

The U.S. Treasury Department preserved a payday for five banks that was worth
almost 200 times the bonuses handed out at American International Group Inc.
through a government rescue.