Bailout Report

In an effort to increase transparency about the $1 Trillion (of $2.1 Trillion) it has added to it’s balance sheet since last September, the Fed committed to issuing a balance sheet performance report on the second Wednesday of each month.

In the first reports, the Fed indicated it netted $2.7 Billion in the first quarter, largely on gains from Term Auction Facility (TAF) loans and on its Commercial Paper Funding Facility; earned $4.6 Billion from Treasury bonds which it started purchashing in March; and lost $5.3 Billion on Bear Stearns and AIG collateral.

Federal Reserve Credit and Liquidity Programs and the Balance Sheet
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Is the furor over AIG bonuses justified or political grandstanding?  Does a 0.01% investment in salaries for the staff overseeing the wind-down of a $1.6 Trillion portfolio justify harikari as Senator Grassley suggested?

Does it take 73 millionaires to wind-down a toxic investment portfolio?

What about the bonuses paid to other Wall Street firms?  Last week Merill  Lynch was in the crosshairs for shotgunning year-end bonuses just prior to the Bank of America takeover.  Is AIG merely the culprits of the week or was the firm’s bonus behavior more egregious than that of other TARP recipients?

Typically, investment banks pay out as much salary as they net in income.  That’s nearly $10,000,000 for banks like Goldman Sachs and Morgan Stanley.  That would buy AIG’s Financial Products staff many tmes over.  On a per employee basis, the investment bank average bonuses are far higher than AIG’s for many job categories.

AIG is no exception to the conduct of other bailout recipients.  It’s employees, however, may be the victim of a slow news cycle.  News of Merril’s bonuses hit while the Madoff scandal was receiving full press news coverage.  Misuse of bailout dollars was indeed in need of a poster child.  That the message turned out to be delivered on a Most Wanted poster is testimony to the growing public outrage.

(Comic captions of Depress-era photos by financial professional Cathleen Ritterreiser.)

AIG Citibank Bailout" src="http://bailout.uslaw.com/wp-content/uploads/2009/03/aig_citibank_pigs.jpg" alt="" width="500" height="375" />

On the same day the federal government announced an additional $30 Billion of aid for insurance giant AIG, the Fed Chariman and Treasury Secretary had this to say about the company in seperate Congressional hearings:

“AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”
- Federal Reserve Chairman Ben Bernanke

“AIG is a huge, complex, global insurance company attached to a very complicated investment bank, hedge fund that was allowed to build up without any adult supervision.”
- U.S. Treasury Secretary Timothy Geithner

(Bailout captions of Library of Congress Prints and Photographs by financial professional Cathleen Rittereiser.)

With the passage of the “Emergency Economic Stabilization Act of 2008″, the government led bailout is currently on track to cost over $1.8 Trillion, more than $17,000 per US household.

With an assist from Reuters.