Investigating AIG

Former NY Governor Eliot Spitzer investigates the nature of the AIG bailout in two stories at Slate.com.  The second piece, The Real AIG Scandal, Continued,  looks at Goldman Sach's comments regarding the additional capital requested by Goldman to secure its credit default swap trades with AIG.

I particularly agree with this comment regarding the Government's response to the AIG bonus payments:

Maybe one or two of the more than two dozen government entities now beating their chests about bonuses can redirect their energies to this much larger issue confronting us: Who signed off on this $80 billion bailout—now approaching $200 billion—and why?

Check out Spitzer's articles on AIG, they discuss a side that received little press coverage.  Spitzer focuses on the decision to pay 100% on the credit default swaps (CDS) that AIG wrote on mortgage backed securities and corporate debt using the taxpayer bailout funds is important. 

CDS are agreements between two parties without the benefit of a clearinghouse guarenteeing performance.  Therefore, counterparty risk a factor in determining the price set by the parties of the CDS contract.  The decision to pay the full value on the CDS contracts (using taxpayer money) when AIG was insolvent was made without debate.  In a bankruptcy/restructuring  of AIG the CDS counterparty would certainly received less than 100% of the insured value.  This decision makes the AIG bailout of $173 billion look more like another broad financial system bailout.