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Goldman Sachs Sent Federal Bailout Billions (Taxpayer Money) Overseas

August 3, 2010

Goldman Sachs sent $4.3 billion in federal taxpayer money to 32 entities, including many overseas banks, hedge funds and pensions, according to records.

Goldman Sachs revealed the list of companies to the Senate Finance Committee after a threat of subpoena from Sen. Chuck Grassley of Iowa, the committee’s ranking Republican. The records were released Friday night.

Asked the significance of the list of companies, Grassley said, “I hope it’s as simple as taxpayers deserve to know what happened to their money.

“We thought originally we were bailing out AIG. Then later on . . . we learned that the money flowed through AIG to a few big banks, and now we know that the money went from these few big banks to dozens of financial institutions all around the world.”

Grassley said he was reserving judgment on the appropriateness of U.S. taxpayer money ending up overseas until he learns more about the 32 entities.

Goldman Sachs received $5.55 billion from the government in the fall of 2008 as payment for then-worthless securities it held in AIG. Goldman had already hedged its risk that the securities would go bad. It had entered in agreements to spread the risk with the 32 entities named in Friday’s report.

Overall, Goldman Sachs received a $12.9 billion payout from the government’s bailout of AIG, which was at one time the world’s largest insurance company.

Goldman Sachs also revealed to the Senate Finance Committee that it would have received $2.3 billion if AIG had gone under. Other large financial institutions, such as Citibank, JPMorgan Chase and Morgan Stanley, sold Goldman Sachs protection in the case of AIG’s collapse. Those institutions did not have to pay Goldman Sachs after the government stepped in with taxpayer money.

Shouldn’t Goldman Sachs be expected to collect from those institutions “before they collect the taxpayers’ dollars?” Grassley asked. “It’s a little bit like a farmer, if you got crop insurance, you shouldn’t be getting disaster aid.”

Goldman had not revealed the names of the counterparties it paid in late 2008 until Friday, despite repeated requests from Elizabeth Warren, chairwoman of the Congressional Oversight Panel.

Grassley said, “I think we didn’t get the information because they consider it very embarrassing, and they ought to consider it very embarrassing.”

The initial $85 billion to bail out AIG was supplemented by an additional $49.1 billion from the Troubled Asset Relief Program, as well as additional funds from the Federal Reserve. AIG’s debt to U.S. taxpayers totals $133.3 billion outstanding.

“The only thing I can tell you is that people have the right to know, and the Fed and the public’s business ought to be more public,” Grassley said.

The list of companies receiving money includes a few familiar foreign banks, such as the Royal Bank of Scotland and Barclays. DZ AG Deutsche Zantrake Genossenschaftz Bank, a German cooperative banking group, received $1.2 billion, more than a quarter of the money Goldman paid out.

Warren, in testimony Wednesday, said that the rescue of AIG “distorted the marketplace by turning AIG’s risky bets into fully guaranteed transactions. Instead of forcing AIG and its counterparties to bear the costs of the company’s failure, the government shifted those costs in full onto taxpayers.”

Grassley stressed the importance of transparency in the marketplace, as well as in the government’s actions.

AIG received the bailout of $85 billion at the discretion of the Federal Reserve Bank of New York, which was led by Timothy Geithner, now head of the U.S. Treasury.

“I think it proves that he knew a lot more at the time than he told. And he surely knew where this money was going to go,” Grassley said. “If he didn’t, he should have known before they let the money out of their bank up there.”

An attempt to reach Geithner through the White House public-information office was unsuccessful.

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