We know that some of that money went to pay for plush resort vacations in California. But that is only the small amounts. The Administration just figured -- "Heh, it's not our money going out the door -- who cares what happens to it?"
It was the same thing with $44.5 billion worth of government contracts for Iraq -- give friends the billions and let them do with it what they want. This attitude led to the firing of an Army official who refused to authorize $1 billion in questionable charges to KBR, the unit of Halliburton (NYSE: HAL) that Dick Cheney formerly ran.
American International Group (NYSE: AIG) is not required to report how it's spending our money, but hints have surfaced about where some of it went: $18 billion to cover losses on AIG's securities lending -- where it lent out securities which then declined in value, and $13 billion to pay guarantees on Guaranteed Investment Contracts (GICs). I know I had nothing to do with these bad business bets so why am I paying for them?
But the biggest chunk of the remaining unaccounted for $101.8 billion went to provide collateral for AIG's $447 billion in Credit Default Swaps (CDSs). AIG claimed in financial statements that its growing losses there involved no cash and were on paper only -- $11.4 billion (12/07), $20.6 billion (3/08), $26 billion (6/08). But AIG must have been "kidding" about no cash involved because by June 2008 it had posted $16.5 billion in cash collateral. And fear that collateral requirements would exceed its cash triggered the Administration to give AIG our $122.8 billion.
Since I doubt we can get our money back from AIG, it's time to get a detailed, independent accounting of how that money is being spent. And if that is not forthcoming, the people who gave out the money and who are spending it now should be replaced with ones who will act on behalf of the taxpayers who are keeping AIG out of bankruptcy -- not to line the pockets of those who put AIG in need of a government bailout.
I think this is a mission for Andrew Cuomo -- one of the few public officials who is actually trying to protect taxpayers' interests. He is trying to get data from nine banks to make sure they don't use the $125 billion paid out to them for bonuses. And his argument is that since taxpayers are their shareholders, the companies owe a duty to protect our interests.
The same logic goes for AIG.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG securities and has no financial interest in the other securities mentioned