Secret side deals involving billions in public funds funneled to giant banks is no way to establish confidence or to advance transparency in a crisis that yearns for both.
Finally, some in the U.S. Congress have begun to take note of the fact that among the $175 billion in bailouts AIG received, billions were redirected to institutions like Goldman Sachs and Société Générale SA. Few questions on this subject were asked of U.S. Treasury secretary Timothy F. Geithner and Fed chairman Ben S. Bernanke during their appearance today before the House Committee on Financial Services. As we pointed out first on these pages a couple of weeks ago (even before The New York Times raised the issue of the non-haircut payments), it is curious that these counterparty transactions were made for 100 percent on the dollar.
As we said on March 7th:
Could these institutions have accepted, in the circumstances, say, 50 or 70 cents on the dollar? It seems not. Nothing but the full amount will do, even if it has to be paid with taxpayer dollars, once more. This, it appears, is what is meant by “systemic.”
These are the kinds of details the Fed did not want the public to know. It is another reason that prompts us to question the judgment being employed here, and the dire warnings that have been made that this bank or that insurance company was too big to fail and that the consequences would shake the world. It also makes us wonder whether the Fed really understands the dangers involved in the ever-expanding stack of trillions being invested, loaned out or printed that it says are needed. Is it possible that this is where the real systemic risks lie, with a government leverage bubble?
Secret side deals involving billions in public funds funneled to giant banks is no way to establish confidence or to advance transparency in a crisis that yearns for both. Outrageous as the AIG bonuses were, they were apparently symptomatic of a much darker and less than candid side on the part of the Fed and other decision makers that needs to be pursued by an alarmed public with equal vigor.