Fed Under Pressure to Reveal AIG Bailout Recipients

File photo: Republican Sen. Jim Bunning wants to know who benefited from the $173 billion AIG bailout


A report that U.S. and European banks benefited by about $50 billion through the bailout of ailing insurer American International Group may increase pressure on the Federal Reserve to be less secretive.

The Wall Street Journal reported in its weekend editions that the indirect bailout recipients were Goldman Sachs, Germany's Deutsche Bank AG, Merrill Lynch (now part of Bank of America), French bank Société Générale SA, Royal Bank of Scotland Group PLC and HSBC Holdings PLC.

When the Federal Reserve announced a bailout of AIG on Sept. 16, 2008, it claimed that a "disorderly failure" could harm markets and cause "materially weaker economic performance." Since then, the Dow Jones industrial average has fallen by 37 percent.

In its announcement at the time, the Federal Reserve and Treasury Department did not identify AIG's banks and other counterparties who were the indirect (or, arguably, the true) beneficiaries. Since then, the initial $85 billion AIG bailout -- which allowed the firm to avoid bankruptcy -- has increased to over $173 billion.

At a hearing last week, Fed Vice Chairman Donald Kohn refused to identify AIG's counterparties, saying that the ultimate bailout recipients were "expecting confidentiality" and the list could not be disclosed. (Bloomberg News has sued the Fed over its penchant for secrecy; so has former AIG CEO Maurice "Hank" Greenberg.)

Sen. Jim Bunning, a Republican from Kansas who has been a bailout critic, told Kohn: "You are telling us that the counterparties that got par for their bonds or for whatever -— the American taxpayer shouldn't know who they are? And then you may come back to us and ask for more money for more banks and more corporations? You will get the biggest 'no' you ever got."

Ed Liddy, AIG's chief executive, recently defended the bailout as saying "government actions that have been thought of as strictly assistance to AIG have benefited the entire financial sector. Working with our partners in the government, we really have provided more stability to the financial sector." That's according to a transcript of the March 2 earnings call posted on SeekingAlpha.com.

Assuming about 105 million households in the United States, the AIG bailout cost per household is about $1,640.

The more taxpayer money that AIG and other bailout recipients consume, the more political pressure will build for transparency. An article from last fall in the Columbia Journalism Review says: "But what strikes me as utterly unacceptable—a true scandal—is that the recipients of U.S. taxpayer funds in the AIG bailout are not even disclosed. We pay them, and we don't even get to know who they are? Has this ever happened before?"

And the Sunlight Foundation, a non-partisan group in Washington, D.C., noted recently that: "AIG counterparty transparency is quickly becoming a bipartisan populist issue." If the Federal Reserve isn't more forthcoming voluntarily, Congress has the choice of forcing it to be.