If all the major AIG losses come from it’s London operation by trades done with all kinds of international counterparties then why is this ONLY a problem for the US government? A huge percentage of those swaps were done with foreign banks to save them from failing a BIS test for minimum capital. When the US makes good on these trades for AIG it is saving many foreign banks. The US government should demand that some of the money come from the European Union.
When the US government pays out these CDS obligations to say Goldman Sachs or Barclays bank, it is paying (apparently) 100 cents on the dollar. Isn’t AIG bankrupt? These trades should be settled like they would be in a bankruptcy court.
Are we so afraid that its counterparties are so fragile that they may fail if the taxpayer doesn’t fork out the full 100 cents? If they do pay out 100 cents then shouldn’t the taxpayer get compensated with equity in the bank they just saved?