AIG, the final insurer of many risky investments causing current pain, collected vast sums of money from credit default swap premiums from companies that purchased mortgage-backed securities and other risky investments. Companies paid these premiums as a hedge or insurance against these investments going bad. As a taxpayer, I can accept and be part of the remediation of these banks that bought these securities and then responsibly attempted to hedge their risk. We need banks and fluid credit to run this economic machine. That's why we back-stopped AIG, despite the fact they made no effort to hedge or set aside money for their own risk.
But, there's a dirty secret about where this money is going. It's not just paying claims to banks that actually own these investments. According to a March 18 New York Times editorial, Eric Cinallo, insurance superintendent in New York, said 80 percent of the $62 trillion in credit default swap contracts written in 2008 were speculative; 80 percent were people/companies who didn't own these assets. They were allowed to make gamblers' bets with 50-to-1 payouts that certain assets would default. A $1 million bet pays $50 million back. There's no productive benefit to the country allowing AIG to pay speculative claims.
We're mad about $160 million of bonuses; how about these numbers: Assuming AIG is paying off credit default swap contracts to everyone and 80 percent are speculative, your $160 billion only has a productive benefit of $32 billion, and $128 billion potentially may end up in the pockets of speculative investors who helped drive our banking system, our country and the global economy right into the ground.
We all need to say "NO!" to paying off speculative contracts. Remember your outrage over AIG bonuses? How do you feel about
$128 billion in windfall profits to investors who only cheered on the demise our great country?
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Chris Baumgarten
Duluth
