Over at TheStreet.com, Eric Oberg explains why he believes the AIG bailout was “not a gift to Goldman”. I disagree, and I told him so:

Dear Eric,

As a former CBOE market-maker and dyed-in-the-wool capitalist, I am not some sort of liberal who hates traders or investment banks. In fact, I have written for TheStreet.com in the (long ago) past.

In my opinion, your article about the AIG bailout not being “a gift to Goldman” is a perfect example of “he doth protest too much.”

The bailout was without a doubt a gift to Goldman and others.

Just because Goldman had entered contracts for which it expected to be paid does not mean that it should have been the taxpayers that made Goldman whole when the counter-party failed.

If you want to make sure you don’t have that risk, you trade exchange-traded stuff so the OCC or some such organization is a AAA-rated middleman insulating you from your counterparty.

Essentially, in my view it doesn’t matter what the money was for and your explanation of the “buckets” is irrelevant. That money came from taxpayers, and without the expansion of the horrible combination of socialism and economic fascism that our country has turned to, Goldman would not have received that gift.

Your example of what would happen to the mortgage market if the house were no longer collateral is irrelevant because the house is not tied up in some enormous other mess which a lender can’t analyze or understand. Furthermore, if there were any fear of this type of thing within the business(es) that AIG is/was in, then counterparties would require more and better collateral within the contracts. And that’s fine.

Regardless of the government letting only Lehman fail (something I do believe was related to the influence of Goldman), the AIG bailout and the payments to banks sends entirely the wrong message.

I originally bought into the “systemic risk” argument for bailing out AIG. And then I saw that the fact that the counterparties were so many in number meant that any and all of them would likely have been able to sustain the losses with little more than a hiccup instead of reaching into taxpayers’ pockets. The payoff to foreign banks is especially outrageous, but the payoffs to Goldman and other US-based institutions was also an immoral transfer of wealth from taxpayers to banks who are in business to take risk.

So now that Goldman got that money from taxpayers, how about them sending back to the Treasury at least the profits they made on any related transactions?

Your pro-Goldman bias is obvious, but you are unconvincing in your efforts to defend what has been shown to be essentially indefensible.

Regards,
Ross Kaminsky