Incestuous Wall Street
Say what you will about the messenger, but Eliot Spitzer raises some interesting points about the AIG scandal: To wit, that the counterparties to AIG are those firms who have already been beneficiaries of the public’s largess, i.e., Merril, Bank of America, Morgan Stanley–you know the list.
Spitzer asks a pertinent question:
Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?
Calling it a possible inside job, Spitzer wants the following questions answered under oath:
What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?
Was it already known who the counterparties were and what the exposure was for each of the counterparties?
What did Goldman, and all the other counterparties, know about AIG’s financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn’t they bear a percentage of the risk of failure of their own counterparty?
What is the deeper relationship between Goldman and AIG? Didn’t they almost merge a few years ago but did not because Goldman couldn’t get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG’s business model was not to pay on insurance it had issued.
Why weren’t the counterparties immediately and fully disclosed?
There has been enormous reluctance to state who the counterparties are. Transparency has never been forthcoming.
Paulson’s first attempt was to ask for a blank check and no accountability: Leave it to Beaver.
All the big players…Benanke and the Fed, Geithner and Paulson…more and more are beginning to look like they have soiled their diapers.