US Bailout Money Wound Up In Foreign Banks

Because of there being no data on where the money was going and a general attitude of pumping as much money into the banks as quickly as possible, billions of US bailout money wound up in the coffers of foreign financial firms, a watchdog panel chaired by Elizabeth Warren – Warren for CFPA head! – found. 43 of the 87 banks that benefited as a result of the of the AIG bailout were foreign.

AP:

An example: Major French and German banks were among the biggest beneficiaries of the U.S. rescue of American International Group Inc., yet the American government shouldered the entire $70 billion risk of pumping capital into the crippled insurance titan. The report compares that with the $35 billion that France spent on its overall financial rescue program and the $133 billion that Germany spent.

Much of the $182 billion in federal aid to AIG – the biggest of the government rescues – went to meet the company’s obligations to its Wall Street trading partners on credit default swaps, a form of insurance against default of securities. The partners included French banks Societe Generale, which received $11.9 billion in AIG money, and BNP Paribas, which got $4.9 billion, and Germany’s Deutsche Bank, $11.8 billion.

In contrast, other countries that had government bailouts focused in a very limited fashion on banks that did not have substantial overseas operations. If the US had had more info on which foreign banks would reap the most rewards, we could have asked them to bear some of the burden, concluded the panel.

A Treasury spokesman said the reported showed, “that Treasury worked effectively with its overseas partners in a number of ways to address the global financial crisis.”

Watchdog panel cites global impact of US bailout [AP] (Thanks to Michael!)

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  1. pantheonoutcast says:

    I’m shocked! Shocked!

    /Well, not that shocked.

  2. c!tizen says:

    everyone blame Obama in 3…2…

    • Torgonius wants an edit button says:

      I blame every idiot politician we’ve elected at the federal level for the past decade, and their appointees, regardless of political affiliation.

      They all need to go.

      • nova3930 says:

        You deserve a +100

      • Robofish says:

        I have a feeling this next election is going to be interesting. One of the candidates for Gov of MD is already encouraging actual business owners to run because he is sick of lawyers in the government.

      • craptastico says:

        smart man. i can never figure out in this day and age how anyone could call themselves a Democrat or Republican. they’re both terrible. i’d rather think for myself

        • YouDidWhatNow? says:

          I am ashamed of anyone who says they’re a “republican” or a “democrat” or anything else.

          Sorry you can’t be troubled to, you know, think about each issue on your own. If you’re just going to assign yourself to one group or another, what purpose are you actually playing in this little political game?

          Frankly, political parties should be outlawed, along with any special assignments granted to parties at the capitol (like minority whip and whatever else). And lobbying should also be illegal. The country suffers every time a special interest buys a vote.

          • craptastico says:

            that’s an interesting idea. no politcal parties. it would just be candidate A against candidate B (maybe C, D and E) and you actually vote for the one you agree with. it’s a novel concept.

            • ARP says:

              A great idea, but you’d have to settle on the person that most closely matches your beliefs, or you’d have 100′s of candidates. Political parties are inevitable result since you can combine votes, money, influence, etc.

              Actually, I think we need more viable 3rd parties: Green, Libertarian, Communist, Whigs, No Nothings, etc. With more viable 3rd parties, you can probably find a party that most closely matches your beliefs. Then it would be a variant of European systems, where certain parties caucus together on certain issues. Since your enemy on one issue, may be your friend the next, it would encourage more civility and compromise. Perhaps a little naive, but one can dream.

              • YouDidWhatNow? says:

                “A great idea, but you’d have to settle on the person that most closely matches your beliefs”

                In theory, that’s what you’re supposed to be doing now…but because of the party system, people generally just vote for who their party tells them to. What you wind up with then is a country run by two political parties, rather than an actual republic.

      • Pax says:

        Only _ONE_ decade …?? How about we go back two, or three? I mean really, one word for you: “Reaganomics”. Thre more words: “Trickle Down Theory”.

        *vomit*

      • pantheonoutcast says:

        I think everyone after Teddy Roosevelt was a bloody idiot, and they only seem to be getting progressively worse.

        • DariusC says:

          +1. I think the same way. Teddy made Social Security, correct? Yeah, hes awesome!

        • Poisson Process says:

          If you like Teddy R. then you should read Overthrow by Stephen Kinzer. Ted was a racist and a war criminal.

          • qualia says:

            Hint: anyone born before 1960 was a racist, and most soldiers will eventually be war criminals because of shifting ethics. Barbarism is war aged 100 years.

            This is why you don’t judge historical figures by modern standards. Unlike them, you get the benefit of their mistakes. That hardly makes you a saint, it just makes you born later.

            • RvLeshrac says:

              I don’t think judging them by modern standards is wrong. Racism is racism. It doesn’t matter if “everyone is doing it,” you’re still a terrible person if you’re racist.

              During WWII, everyone hated the jews. No one wanted to take them in or protect them from Germany. Countries only entered the war because they were threatened. Everyone hating the jews at the time doesn’t make the holocaust “OK by historical standards.”

              • Poisonthescene says:

                If you’re not OK with polygamy you may be a bigot by 2110′s standards. Are you prepared for this?

  3. YouDidWhatNow? says:

    “Warren for CFPA head!”

    …eff that.

    Warren for President!

  4. ALP5050 says:

    Just another step towards collapse.

  5. craptastico says:

    i hate to say it, but in reality all banks are multinational at this point. heck almost all big corporations are multinational. we gave AIG money b/c they owed it to people and if we didn’t give it to them our lending markets may have seized. we can’t complain that some of the money was owed to foreign banks b/c we already knew that. Goldman Sachs was probably their biggest debtor and their US, does that really make you feel any better?

  6. CajunGuy says:

    I seem to remember a group of political leaders gathering for a press conference, telling us how we had to sign this NOW. There was no time to wait. There was no time to negotiate. There was no time to THINK. Hurry, hurry, rush, rush. And now…

    Imagine my surprise in reading this article. I don’t blame Obama. I blame Obama, Bush, Franks, Pelosi, and every other non-thinking member of our government for this. It’s not about political parties, it’s about politics. Just imagine what that ~$1 trillion could have actually been used for instead of, supposedly, baling out banks that couldn’t hold their stuff together. Or better yet, NOT spend that ~$1 trillion, and not find ourselves in the even bigger hole we’re in.

    • Torgonius wants an edit button says:

      Better yet, we could have not borrowed it and then spent it.

    • SlappyFrog says:

      Really?

      “was signed into law by U.S. President George W. Bush on October 3, 2008.”

      “On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program.”

      • ARP says:

        With D’s support and Obama kept it going without a lot of changes. Sure he made some changes along the margins, but nothing major. Now if Obama turned it on its side, then it would be easier to place blame.

      • Fineous K. Douchenstein says:

        Obama did happen to be a Senator at this time. Yes he is to blame, also.

  7. Loias supports harsher punishments against corporations says:

    I’m not sure why this is bad – at least the example provided. Our goal was to bail out a U.S. bank, in this case AIG. Part of that, obviously, seems to pay it’s insurers, whether or not they are a U.S.-based company. I think it’s obvious that in this age, big banks are international entities, not mom and pop banks for local communities.

    If they wanted to bail out only American companies, they should have stuck with credit unions. Oh, except most of them didn’t need bailing out because they were fiscally responsible.

  8. lawnmowerdeth says:

    Some of us were pointing this out when it was actually happening a year ago. Glad to see everyone is caught up.

  9. Brink006 says:

    I don’t even know if this is good or bad or simply alright, other than the fact we could’ve asked foreign countries to assist. The entire system is so complex; I’ll take a pass on being like everybody else and pretending I have even the slightest clue on how this all works.

  10. grapedog says:

    I told my idiot friends this from day one, AIG was a huge fucking funnel… but no, “we need the bailout”…

    • ilovemom says:

      The American taxpayers are the victim in the largest protection racket ever pulled off. The question is: what would have happened if we didn’t pay the thugs? Would they have burned down our grocery store or would they simply have flipped over a few racks of produce and beaten us up? We’ll never know.

      • grapedog says:

        Plenty of people knew about it, 60% of the population was AGAINST a bailout, but they went ahead and did it, and then most of the electorate got to keep their jobs. This country is dickless and apathetic…

  11. SlappyFrog says:

    Rick, Rick, I am SHOCKED to find there is gambling in this establishment!

  12. ARP says:

    We all knew this was happening, but we held our noses because we had become so beholden to a few large banks, we had no meaningful choice. If they didn’t lend the little money that they did, our economy would have been much worse than it was now.

    My problem is that we didn’t learn from it. You can blame whoever (whomever?) you want (e.g. bankers, AIG, politicians, Fannie, people who bought too much house, minorities). The problem is that too big to fail still exists and the financial reform bill did nothing to solve that.

    • Akuma Matata says:

      “too big to fail” is only strengthened under the financial bill, and 2 of the biggest culprits in the collapse, Fannie and Freddie, weren’t even touched (Barney Frank admitted Congress doesn’t even know what to do w/ them).

  13. jp7570-1 says:

    President Warren in 2012.

  14. AngryK9 says:

    Raise your hand if you are surprised by this.

    I didn’t think so.

  15. PanCake BuTT says:

    !_CRIKEY_!

  16. humphrmi says:

    Well, we could have told AIG “Here’s a pile of money, but only pay out obligations you made to U.S. companies… screw the foreigners!” Would that have worked?

    Also, it might be worthwhile noting that part of what drove the U.S. into the “Great Depression” back in the ’30′s was protectionism… every country that was impacted by the depression that fed money into their economies ensured that their money was only being spent on their own country’s benefit. I’m oversimplifying, there’s not enough room to explain it all in detail, but the net effect was that most Economists to this date agree that’s what pushed the world from a really bad recession into a complete collapse, and depression.

    On the other hand, what we’ve had in the last ~3 years is a really bad recession. While the signs of recovery a muted, they are there. Clearly we’ve averted a depression. Maybe because we didn’t play protectionist this time?

  17. watch me boogie says:

    I think this says more about how much of America is owned by foreign entities than about issues with the bailout (and there are plenty of issues with the bailout, no shocker there).

  18. econobiker says:

    Money knows no borders much the same as these corporations.

    Corporations are more like viruses or bacteria which try to propagate and eat (eat $$$) no matter what the host and even if it eventually kills the host. They morph for different conditions and hosts (countries) and even try to fake out the host in order to gain a foot hold or maintain their position.

  19. Hotscot says:

    Politicians, City Managers, Chiefs of Police, Mayors etc etc.

    Why oh why do they all end up rich? With pensions and benefits that pay more each year for the rest of their life, when they retire, than most people make in several years?

    For heavens sake didn’t these positions originate from a desire to offer services to the smooth running of the community?

  20. wild7s says:

    Bailing out foreign markets WEAKENS the US dollar, hurray for Commu…oops, I mean ‘socialism’!

  21. smo0 says:

    I know this is gonna sound.. well… off….

    but uh, watch “The Other Guys”…. believe it or not, they parody this situation…

  22. Bkhuna says:

    Incidently, that some of that Hope and Change ya’ll bought into.

  23. johnny says:

    Here is what happened –
    According to the Basel II banking accords, foreign banks need to keep a certain percentage of their assets in reserve. The value of these assets are “risk-weighted”, meaning, Nigerian government bonds worth the same face value as a US Treasury bill are not counted as having the same value since repayment of the Nigerian bond is less likely and therefore the value is discounted.

    Foreign banks would then buy default insurance against these risky assets making the combination, in effect, risk free. The combination of the two would allow the banks to count the full value of the asset, no matter the risk involved in repayment, since AIG is on the hook if something bad happens.

    The crazy thing that happened is that AIG sold insurance on these risky assets without the capital reserves to cover the worst case losses. So, an American company used its AAA debt rating to mislead purchasers of these insurance policies that they could make good on the policy.

    When it was clear that AIG did not have the money to cover the promises made on their insurance policies, the US stepped in and covered the obligation. If it didn’t, there would have been chaos in world markets as the foreign banks would be forced to stop lending because they were now hopelessly under their reserve ratios as mandated under Basel II.

    The US treasury stepped in not to insure that French and German bankers were able to buy cognac and cigars, but to keep the world financial system from seizing up, making a bad situation somewhat less worse than it would have been by punting the losses into the future and avoiding a complete meltdown.

    More detail here –
    http://www.nytimes.com/2009/02/28/business/28nocera.html?_r=1

    Therefore, the headline should read “US Bailout Money Wound Up In Foreign Banks, yay!”

  24. AllanG54 says:

    So what’s the big deal. Those banks loaned AIG money. They needed to get paid back. Is that such a crime?

    • operator207 says:

      This. Everyone stop thinking so small. There is a much bigger picture out there. I am not saying “screw America”, I am saying DON’T screw the world (including America).