Did AIG's Bailout Benefit Goldman or Its Counterparties?

When the U.S. government decided to bail out AIG, Goldman Sachs was one of a handful of banks provided with billions of dollars in money they were owed by the troubled insurer. The government paid these obligations in full, much to the dismay of an array of critics. But Goldman said that it was hedged on its contracts with AIG anyway, so it really should receive payment in full. Yet Congressional Oversight Chair Elizabeth Warren wanted proof. She's beginning to get it.

While we still don't know the full list of the banks, leaks indicate that behemoths like JPMorgan and Citigroup are among the firms that sold protection from an AIG default to Goldman. This is utterly unsurprising, as these are precisely the sorts of institutions that would be able to sell such insurance. They would have to be strong counterparties.

But this does raise an interesting question. Assuming that Goldman really was fully hedged against an AIG default, who did the AIG bailout benefit more -- Goldman or its counterparties? If AIG had failed, and those insurance contracts that Goldman had with banks like Citi and JPM were triggered, then those counterparties would have been forced to pay Goldman (and presumably others) billions of dollars. Whether or not AIG survived, Goldman would have gotten its money. But by the government saving the insurer, it prevented the counterparties from having to pay out these big sums.

This question matters, because all along Goldman has been portrayed as one of the villains in the AIG fiasco. The narrative goes that the AIG bailout was very lucrative -- even a backdoor bailout -- for Goldman. But, in fact, it may have done a lot more for its competitors. Not only were they saved from having to pay out large sums of money to Goldman, but they also got to keep whatever fees they charged Goldman for writing these insurance contracts in the first place.