I hope everyone who reads my posts already understands that the real beneficiary of the AIG bailout was Goldman Sachs. In brief, Goldman made money underwriting mortgage investments that it sold to various pension funds. Goldman suspected that the investments were doomed, and leveraged a whole lot of money to make bets against the very investments it was underwriting and selling.
When the mortgage industry collapsed, Goldman won very very big. They were right to bet against the investment products they were selling. So they made money on both ends – selling the crap, and betting against the crap. Problem is, AIG was on the other side of those bets, essentially insuring the awful mortgage packages. And AIG didn’t have enough money to pay Goldman its winnings.
Instead of letting AIG fail, and leaving Goldman with only its original profits from selling awful mortgage investments to major American pension funds, the central government (advised by its fiscal staff of former Goldman execs) bailed out AIG so that it could pay back Goldman its winnings. Our grandchildren’s tax money will be used to pay Goldman for winning its bets against the products it sold to our pension managers.
Now that Goldman has paid its executives the biggest bonuses in the company’s history, many people are mad. So the Administration’s bright idea is to force companies who took government bailout money to put caps on such bonuses. Problem is, Goldman didn’t get bailout money – not directly, anyway. They got the money, sure, but the loans were not made to Goldman.
So they get to keep it all. Again.
Kind of makes you wish you’d bought GS stock when it was down around 60 last year…