Hypocrisy and Misunderstanding Surrounding Everyone's Favorite New Punching Bag AIG

The new week brings all sorts of news surrounding AIG. While it only affirms what we have always felt about AIG, the reactions are rather revealing about those commenting on it. The first bit of news was the revelation that AIG is going ahead with payment of about $160 million in bonuses to executives including those in the troubled credit default swaps division. The other news item was the revelation that some of the bailout money went to pay firms outside the United States.

Now, everyone expressed outrage at the bonuses but all sides of the outrage showed a bit of hypocrisy in their outrage. The administration said that while they were outraged by the bonuses but that it was their understanding that these bonuses were all part of an ironclad contract. Meanwhile critics said that the contracts needed to be damned and that these bonuses needed to be voided.

Now, let's compare how both groups act toward these contracts compared to the contracts known as mortgages. The same Obama administration that is now hiding behind the sanctity of contracts was all too willing to pressure banks to break mortgage contracts in a fevered attempt to modify millions of mortgages. Yet, the same opponents of loan modifications, those who claim that there is a sanctity of contracts, are now willing to dismiss contracts because of moral outrage. For both sides, the sanctity of contracts depends on the situation.

The other news is that AIG has been pouring billions in bailout funds overseas.

Billions of American taxpayer dollars used to bailout insurance giant AIG are flowing to some of the largest foreign banks in the world, according to new documents released by beleaguered company Sunday.

The revelation seemed sure to cause political complications for President Barack Obama and his economic team, already on the defensive Sunday over why they couldn’t stop AIG from doling out $165 million in bonuses to some of its top corporate officials — even as the company was receiving a massive infusion of taxpayer funds.

The documents AIG released account for some of the more than $180 billion in aid that AIG has received, and they detailed for the first time which financial firms are benefitting from the federal handout.

In all, AIG disclosed payments of $105.3 billion between September and December 2008. And some of the biggest recipients were European banks. Societe Generale, based in France, was the top foreign recipient at $11.9 billion, Deutsche Bank of Germany got $11.8 billion and Barclays, based in England, was paid $8.5 billion.

Now, anyone outraged over this simply doesn't understand what is going on with AIG and why we are told they needed to be bailed out. Their so called credit default swaps were used by banks and other financial institutions all over the world as hedges to financial investment. The reason why we are told that AIG needs to be bailed is because their collapse would set off a global financial meltdown since they owe everyone all over the world.

Why is anyone shocked or surprised that bailout money is used overseas? AIG owes everyone including those firms that are overseas. Those that are outraged would have AIG only pay creditors that are within the U.S. Of course, that isn't how it works and frankly nor should it. The credit default swaps have sent AIG into a tailspin and financial service companies all over the world are counting on payment in order to cover their own losses. AIG can't pick and choose who to pay based on their country of origin. They owe everyone and every Dollar goes to make good on commitments from bad credit default swap contracts. Anyone outraged that bailout money is going overseas simply doesn't understand the nature of the situation.