Thursday, October 29, 2009

Tales from Bailout Nation Pt. XX

Crony capitalism: an allegedly capitalist economy in which success in business depends on close relationships between businesspeople and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.

It has been suspected all along but it is now a matter of public record that AIG, under the direction of the U.S. government, used their TARP money to bail-out other financial institutions:

The Federal Reserve Bank of New York said Tuesday that it had no choice but to instruct American International Group last November to reimburse the full amount of what it owed to big banks on derivatives contracts, a move that ended months of effort by the insurance giant to negotiate lower payments.

Fed officials offered the explanation in a rare response to a media report after Bloomberg News said that the New York Fed, led at the time by then-President Timothy F. Geithner, directed AIG to make the payments after it received a massive government bailout. The officials said AIG lost its leverage in demanding a better deal once the company had been saved from bankruptcy.

Lawmakers and financial analysts critical of the payouts say it amounted to a back-door bailout for big banks. AIG, the recipient of a $180 billion federal rescue package, ended up paying $14 billion to Goldman Sachs over months and $8.5 billion to Deutsche Bank, among others. Before the New York Fed intervened, AIG had been trying to persuade the firms to take discounts.

The precise cost to taxpayers of these decisions is difficult to determine. Bloomberg, quoting an industry source, reported Tuesday that AIG was aiming to pay just 40 percent of the $32.5 billion it owed to the banks. Using those figures, the report concluded that the government needlessly overpaid $13 billion.

Capt. Ed is correct in calling this a money-laundering service with as little transparency as possible.

Recall the pitchfork-wielding mobs Congress was attempting to muster and the outrage they were eliciting over the AIG bonuses.

And recall it is the two-time tax cheat, Tim Geithner's very Treasury Department that is going after the “sheltered” money of U.S. taxpayers in overseas and Swiss bank accounts in an attempt to make them "pay their fair share".

Please keep that term “crony capitalism” and all the lessons we’ve learned together from Tales from Bailout Nation in your back pocket the next time you here someone rail on about the failures of capitalism.


SarahB said...

Passing this on... especially since the administration is pronouncing the miraculous end of the recession.

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