AIG bailout ripples spread far and wide

The BBC’s Robert Peston has a piece on his blog about how some banks which said they weren’t bailed out by state aid were, in effect, bailed out by state aid.

The reason?  They had lent money to AIG.

Had the US government not rescued the failing insurance behemoth, a number of banks would have seen their assets turn to dust. Among others, Goldman Sachs, Barclays, Societe Generale and Deutsche Bank would have sustained substantial losses if AIG had been allowed to crash. Via AIG, Goldman has received $13bn, SocGen $11.9bn, Deutsche $11.8bn and Barclays $8.5bn. All courtesy of the American taxpayer.

This neatly illustrates the point of the various government bank bailouts around the world. They were done to rescue the banking system not just those banks that managed their affairs badly. Letting AIG collapse could have tipped other banks over the edge. Their creditors might then have gone bust too and so on.

It sticks in taxpayers’ throats to pay to support these financial institutions, especially when, as in the case of AIG, much of the money goes out of the country. The alternative, though, would have been a spiral of bank failures that would have made the post-Lehman bloodbath look tame.

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