When it is money laundering.

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American Insurance Group received $85 billion in taxpayer money in September of 2008 to keep it from crashing.  We, the taxpaying public, were told at the time that this money was necessary to keep the crisis from spreading.  Not being a financial expert, I failed to understand this, and was thus credulous about claims that AIG was the lynch pin holding the US economy together that must be saved at all costs.  But my failure to understand also meant that I could not muster the proper outrage at what was going on. I no longer have that problem.

We are now, as a nation, $152 in the hole to AIG.  Where has that money gone? And how did it help save the economy? Yesterday, those questions were answered when AIG published a list of counterparties.

Counter-whatsits? What does that have to do with anything? What is going on? I feel like this should make me angry but I don't know why! Help!


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The I in AIG stands for Insurance.  There are many kinds of insurance. The kind you are familiar with is car insurance, homeowner's insurance, life insurance.  When an asset is insured in this manner, there are rules and regulations governing how the insuring company must behave.

You own a home. If the home were you catch fire, or be hit by a tornado, the loss to you would be catastrophic. To mitigate that risk, you come to me to purchase insurance. I agree to insure your house if you pay me a monthly premium. If your house burns down, I pay to rebuild it. If it never burns down, then I keep your monthly premium as profit.

But how can you be sure that I can afford to repay the promised amount? Well, you can be sure because the government regulates this type of insurance.  This protects against both out and out fraud as well as poor business practices. I am not allowed to write you a policy without having a certain amount of cash set aside. That way, if lots and lots of houses burn down at once, everyone still gets the insurance that they paid for.

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But it isn't just houses and cars that get insured.  Let's say you purchased an investment, and you wanted to hedge your risk.  A way to do this would be to purchase insurance on the value of that investment.  You take some of the profits you have earned from the investment increasing in value, and you spend it on insurance. That way you make a little less money, but in the event that the investment goes south, you don't take a huge loss.

This is sound business practice, provided that everyone involved isn't entirely full of shit. Here is what actually happened:

The investments in question, mortgage-backed securities, were not actually worth what they were supposedly worth in the first place.  Banks, who were full of shit, lent shitloads of money to people who couldn't afford the houses they were buying, because those people were full of shit. Then, when those loans were securitized (turned into investments), the credit rating agencies rated these investments as triple-A, their highest rating, even though they weren't worth shit, because the credit rating agencies were entirely full of shit.

Then, the investors purchased insurance on these total bullshit investments from AIG. Only AIG was allowed to sell insurance on these items without having any cash set aside, because this type of insurance was unregulated, because the government in general, and Republicans in particular, wanted to de-regulate everything. So the full of shit government allowed full of shit AIG to write total bullshit insurance on investments that were doomed to crash because they were built on complete horseshit in the first place. Still with me?

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Now those investments have crashed in value, and the investors are calling in their debts from AIG. Only AIG doesn't have the money to cover the $300 billion in insurance they wrote on these investments, so now the investors are totally fucked. Or at least they should be. Because we are about to come full circle to reveal the ways in which this whole scam has been perpetrated on the American taxpayer in a way that is incredible devious, brilliant, and kind of beautiful.

The money paid to AIG to "bail them out" was actually to cover the payments that AIG needed to make on this insurance.  We've paid out $150 billion so far, or about half of the total outstanding amount. When AIG was forced to reveal the list of  "counterparties", they were revealing the list of entities that had purchased this insurance.  It is really these "counterparties", and not AIG, that we were bailing out.

Deutsche Bank. UBS. Goldman Sachs. Merrill Lynch.  These are the companies that have actually been bailed out.  The same companies that drove up demand for the mortgage-backed securities that inflated the bubble are now getting bailed out while suffering no losses. The sound and fury over millions paid out in bonuses obscures the real crime, the BILLIONS paid out on insurance claims written by AIG. 

Insurance written on investments that were worthless without any intent to make good on the contracts.

The banking industry, government (de-) regulators, credit agencies, and AIG have, intentionally or not, conspired to siphon money from the taxpayers to private companies.  AIG is nothing more than a shell corporation, a front, to funnel money from the US Treasury to private companies.  That, last I checked, was called money laundering.