International banks and financial companies in Germany, Spain, Ireland, Britain and Hong Kong were indirect beneficiaries of the US government’s 2008 bailout of American International Group Inc (AIG), according to newly released documents.
The documents released by Senator Chuck Grassley contain a list of the 27 banks, hedge funds and financial companies that received US$4.3 billion from Goldman Sachs Group Inc. The money was to reimburse them for losses on investments called credit default swaps that plunged in value during the financial crisis.
The money trail actually began with AIG, which sold the swaps to Goldman. The big investment bank in turn sold them to its customers, including the international banks and financial companies. When AIG received a bailout worth US$182.5 billion, it reimbursed Goldman and other banks, which then repaid their customers.
Credit default swaps are essentially contracts that insure against the default of bonds and corporate debt. Sellers of swaps, such as AIG, are obligated to repay customers if the value of the underlying bonds or debt declines.
Much of the federal rescue money for AIG was used to pay its obligations to its Wall Street trading partners on credit default swaps. The biggest beneficiary of the AIG money was Goldman, which received US$12.9 billion.
According to Grassley, the documents show that the five banks or companies ultimately receiving the largest amount of taxpayer money were DZ Bank AG in Germany, which received US$1.18 billion; Banco Santander Central Hispano SA of Spain, which received US$484 million; Ireland’s Zulma Finance PLC, which received US$416 million; Infinity Finance PLC in Britain, which received US$277 million; and Britain’s Sierra Finance PLC, which received US$223 million.
Another US$173 million went to Hongkong & Shanghai Banking Corp, which has HSBC operations throughout the US.
Goldman had previously disclosed that it had made payments to its customers, but did not say who the recipients were. It gave the information to Grassley after he threatened to subpoena the bank.
Grassley released the documents showing the payments late on Friday.
The payments have been controversial because of concerns that the banks should have absorbed more losses on their investments rather than be reimbursed with taxpayer money.
Last month, a watchdog panel raised new doubts over the likelihood taxpayers will be fully repaid for the government’s bailout of AIG.
“The government determined that a collapse of AIG would be systemically disastrous,” Goldman Sachs spokesman Lucas van Praag said. “And of course if a systemic problem had ensued, we along with every company in the world would likely have been affected.”
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