WASHINGTON/NEW YORK (Reuters) - A large portion of the taxpayer money spent to rescue insurer AIG was passed on to Goldman Sachs and several European banks, who were among the major beneficiaries of more than $90 billion in payments in the first three-and-a-half months of the government bailout, AIG disclosed on Sunday.
The revelation was another public relations nightmare, coming on the same weekend that the Obama administration expressed outrage over American International Group Inc's plan to pay massive bonuses to the people in the very division that destroyed the company by issuing billions of dollars in derivatives insuring risky assets.
AIG, an embattled insurance giant that has received federal bailouts totaling $173 billion and is now paying $165 million in employee bonuses, is at the heart of a global financial crisis that President Barack Obama is trying to address with plans for trillions of dollars in spending.
As part of those efforts, Obama will announce steps on Monday to make it easier for small business owners to borrow money, officials said.
But the revelations that billions of U.S. taxpayer dollars were funneled through AIG to Goldman Sachs -- one of Wall Street's most politically connected firms -- and to European banks including Deutsche Bank, France's Societe Generale and the UK's Barclays was likely to stoke further outrage at the entire U.S. bank bailout.
While the payments were not illegal, the fact that billions of dollars given to prop up giant insurer AIG were then transferred to European banks and Wall Street investment houses could raise new doubts about whether the rescue was really economically necessary.
The payments to AIG counterparties include the provision of collateral to back up credit default swaps, a form of financial insurance that AIG's London office was writing, the purchase of the collateralized default obligations, a type of complex debt security that underlay that insurance, and payments to counterparties of a securities lending program.
AIG payments to banks stoke bailout rage | U.S. | Reuters