The government cash flowing steadily into AIG is going in no small part to pay off hedge funds that bet against the housing market, the Wall Street Journal reports. The hedge funds placed credit default swap bets with other banks—Deutsche Bank and Goldman Sachs are specifically named in documents reviewed by the Journal—but AIG then insured the banks. Now it’s on the hook for billions.
It’s unclear how many billions that will eventually be, but of the $173 billion taxpayers have pumped into AIG, roughly $52 billion has gone to cover these housing bets so far. “AIG's financial-products division went heavily into the business of speculation,” explained one consultant, “and its gambling debts are what taxpayers are paying off right now.” (Read more AIG stories.)