Before our daily meditation on the AIG bailout, a word from Charles de Gaulle (maybe):
The graveyards are full of indispensable men.Somehow, the collapse of AIG will create a black hole which will end life on Earth as we know it. So says Fed chairman Ben Bernanke:
But he said, "We really had no choice" but to prop up the company because the consequences of failure could be disastrous.No choice! The fear in Washington is that if AIG collapses, it's going to drag a lot of AIG creditors and partners down with it. But, since they all played roulette with credit default swaps, why should they be shielded from risk? Furthermore, as the new majority stakeholder in AIG, could we at least know the names of these partners in crime?
This strikes me as a completely legitimate question. After all, the reason A.I.G. is being propped up is that the government fears that if the company defaulted the counterparties would suddenly be faced with tens of billions of dollars worth of unacknowledged losses - and they would go bust. It would make the Lehman fiasco look like a garden party. As Nouriel Roubini put it on CNBC recently (I’m paraphrasing): It’s not a bailout of A.I.G.; it’s a bailout of the counterparties?Enough is enough. AIG is not indispensable and taxpayer wallets aren't bottomless.
What’s more, a fair amount of what A.I.G. was doing was pretty sleazy behavior, using credit default swaps to help banks evade regulatory capital requirements. And yet when newspapers like this one have requested the information, they have been ignored or turned down.
The answer, as I understand it, is that A.I.G. views these as “confidential transactions,” and the government (as per usual?) is going along with that rationale. One government official told me that if the federal government divulged the names of the counterparties it would amount to a violation of the Trade Secrets Act - unless the counterparties agreed to it, which they never will.
Pretty unsatisfying, isn’t it? Gobs of tax money is going to bail out unnamed companies - and yet we aren’t allowed to know who they are, and are supposed to take it all on faith. You know those awful cases you read about every once in a while where a child dies in a troubled home - and then the state health department won’t divulge any information out of “privacy concerns”? This strikes me as the financial equivalent of those cases. As excuses go, it sure is convenient.
Also - WSJ: "AIG's black box"