Amid all the furor over retention bonus payments to AIG employees, Rep. Mike Pence of Indiana, chair of the House Republican caucus, said another outrage in the AIG bailout saga isn't getting enough attention.
"And the other unreported story today is tens of billions of dollars that flowed straight through AIG into the coffers of foreign corporations and foreign banks," Pence said in an interview on MSNBC on March 17. "You know, the American people are frustrated with this."
To date, American taxpayers are $170 billion into AIG bailout as part of an effort to save the global insurance conglomerate from a collapse that many fear would have a catastrophic effect on the U.S. and global economies. But for months, AIG refused to say where that bailout money was going. Under mounting pressure from Congress, on March 15 AIG finally released the names of financial institutions that benefited from the rescue money.
Although U.S. firms like Goldman Sachs, Merrill Lynch and Bank of America got the lion's share of payouts, the list also included a number of big foreign banks: Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain, $8.5 billion; and UBS of Switzerland, $5 billion. In all, corporations in France and Germany got nearly $36 billion; and all foreign companies got nearly $60 billion.
So Pence is right, tens of billions of U.S. taxpayers dollars certainly flowed to foreign corporations and banks.
But what did people expect? asked J.D. Foster, a senior fellow in the economics of fiscal policy at the conservative Heritage Foundation. AIG is a global company, indeed the largest insurance company in the world.
Remember, Foster said, "the reason that AIG was taken over by the federal government was to prevent it from going into bankruptcy." It had a number of contractual obligations to both U.S. and foreign firms that it could not meet.
"If (AIG executives) had made the decision that they were only going to pay U.S. companies, the foreign companies would have gone to court and put AIG in backruptcy," Foster said. "And the whole point was to keep them out of bankruptcy."
"It’s understandable that people would be mad that taxpayer dollars would go to a place that you might not want it to go, to foreign corporations," he said. "(But) the only reason to give money to AIG was to close out its contracts. Some of those contracts are with foreign corporations."
Pence isn't saying AIG should only have used taxpayer money to pay off obligations to U.S. companies. Pence doesn't think American taxpayers should have been paying for a bailout at all.
Pence opposed the first rescue plan last fall, despite the urgings of President Bush and many key Republican leaders. Although a number of Republicans supported the bailout — enough for it to pass handily — Pence noted this week that a majority of Republicans in the House voted against it.
"The American people have had it," Pence said in a news conference on March 17. "They want this Congress to get back to fiscal discipline and restraint and the belief that the freedom to succeed includes the freedom to fail. We have got to bring this country back, this business community back to the notion of personal responsibility and accountability for one's actions."
There are reasoned arguments on both sides of whether Congress ought to have committed billions of taxpayer dollars to bailing out the troubled AIG. But the fact is, one of the consequences of infusing AIG with taxpayer cash to help it pay off its financial obligations was that tens of billions of that money went to foreign companies. We rule Pence's statement True.