AIG Needs Transparency Now

On Thursday, I appeared on Warren Olney's To The Point radio show, urging transparency on the subject of AIG's counterparties and speculating that the real reason their identities were being kept so quiet was that no one in the US government wanted to face the inevitable firestorm when it emerged that many of those counterparties were European and not American.

The release of today's WSJ story on those counterparties only serves to underline my point. The story is vaguely sourced, and it's not at all clear what the "large payouts from AIG" that the story talks about actually are. But no matter: a glance at the Calculated Risk comment thread is sufficient to see that the firestorm is building.

At this point, the government -- which owns AIG and therefore knows exactly who the counterparties are -- must start getting much more transparent, and very quickly. The cat is more or less out of the bag anyway, and intelligent conversation is always preferable to ill-informed speculation.

A lot of banks used AIG to insure themselves against a global financial meltdown. When that meltdown happened, even the mighty AIG was incapable of paying out on its obligations, so the US government stepped in to backstop them. Is it a scandal that many of AIG's insureds were European? I don't think so. But it does imply that maybe some European governments should be sharing with the Obama administration the burden of backstopping AIG's obligations.