Save AIG, Save the World (So Far)

Highlights include American International Group, Inc. (AIG - Snapshot Report), Societe Generale (GLE), Deutsche Bank (DB - Snapshot Report), UBS (UBS - Snapshot Report) and Goldman Sachs (GS - Analyst Report).

The Government's Backdoor to Propping Up the Financial System?

Members of the President's administration, Timothy Geithner (Secretary of the Treasury), Barney Frank (Democrat House Representative and Chairman of the Financial Services Committee) and others are pontificating upon the "Audacity of Bonuses" paid by AIG Insurance (AIG - Snapshot Report) to managers and other employees viewed as being responsible for creating the problem after and resulted in the need for the company to receive $173 billion in U.S. government bailout funds so far.

However, we suspect the more important issue to focus on is this: that by not letting AIG fail and pay on its counter-party agreements, the US government was, in effect, propping up not only the banking system of our country, but other countries as well.

From September 16 through December 31, 2008, the company paid more than $90.0 billion to various banks. Some of these included European entities such as (but not limited to) Societe Generale (GLE), Deutsche Bank (DB - Snapshot Report), UBS (UBS - Snapshot Report), Calyon and Deutsche Zentral-Genossenschaftsbank, U.S. entities such as Goldman Sachs (GS - Analyst Report), as well as payments on Guaranteed Investment Agreements held by cities across the country to include but not limited to those in California, Virginia and New York.

We suspect that potential for additional payments to have been made by AIG since is high. However, we would note that had the U.S. not stepped in to prevent AIG from going under, the losses that could have been experienced by financial entities in 3Q-4Q08 would have rippled around the world -- resulting in a number of financial behemoths failing (at worst) or being significantly crippled for years, creating an even deeper retrenchment of economies and financial markets globally than we have experienced to date.

Therefore, keeping AIG around has been a necessity.