WASHINGTON — In the six months since the government’s bailout of insurance giant American International Group, one question has loomed above all others: Where did the money go?
The answer became a little clearer Sunday when AIG unexpectedly released the names of dozens of trading partners it has paid using billions in taxpayer dollars. The disclosure, which the company said was made after consulting the Federal Reserve, revealed that AIG paid more than $75 billion in the final months of 2008 to domestic and foreign banks, as well as to U.S. municipalities.
The funds were paid from the government’s initial $85 billion emergency loan in September and included firms such as Goldman Sachs, Societe Gen erale, Deutsche Bank, Merrill Lynch, Morgan Stanley, Bank of America and Barclays.
More than $34 billion of the money went to trading partners of AIG Financial Products, the small subsidiary whose exotic derivatives brought AIG to the edge of collapse.
In recent years, the firm had written massive numbers of credit-default swaps, insurancelike contracts that other companies bought as protection against the default of mortgage-backed securities. When the housing boom began to go bust, banks that had purchased the swaps demanded collateral from AIG, burying the company under a tidal wave of debt.
In the last months of 2008, AIG Financial Products paid more than $22 billion in taxpayer money to satisfy debts caused by its swap contracts.
Another $12 billion went to pay off municipalities in dozens of states for which the firm had created complex investment agreements.
Nearly $44 billion paid debts that AIG incurred in its “securities lending” program.
