The real scandal at AIG is the not the bonuses. It's the payments to counterparties. - By Eliot Spitzer - Slate Magazine

The real scandal at AIG is the not the bonuses. It's the payments to counterparties. - By Eliot Spitzer - Slate Magazine

I hate to start shouting conspiracy, but there is a lot that I don't fully understand behind this bail out.

There are some assumptions that Slate really points out that need to be answered. Let's step back and review the timeline.

http://www.foxbusiness.com/story/markets/economy/timeline-financial-crisis/

Based on the seizure of Fannie Mae and Freddie Mac, did political insiders get the gravity of how bad the housing market was? If so, did they start realizing the parties that were at system risk? The treasury bought mortgage backed securities so they new that those involved in the credit swaps and the collaterlization of mortgages were going to take a hit.
- Sept. 7: Government Seizes Fannie Mae, Freddie Mac Government takes control of the mortgage giants, putting the liability of more than $5 trillion of mortgages onto the backs of U.S. taxpayers.

Bank of America buys Merill for a huge discount but doesn't buy Lehman's, what role did the goverment play in negotiating the BofA deal? The deals were conducted at the NY Fed, where wall street chiefs work with Geitner , Paulson, and Bernanke probably playing a big part. Sources say that Geitner put a lot of pressure on BofA to make this deal occur. Did this pressure come at a cost where the government owed something for this move? Why was the decision made to broker a deal with Meril but not Lehman's. It appears that letting Lehman fail did not have the catastropic impact that may have been expected.
- Sept. 11: Lehman Brothers Says it’s Actively Looking to be SoldShares of the investment bank plunge 45% as traders feared it was having a difficult time finding a suitor.
- Sept. 14: Bank of America Says it Will Buy Merrill Lynch for $29 a ShareAfter walking away from Lehman Brothers, the bank said it would pay $50 billion for the brokerage house.
- Sept. 15: Lehman Brothers Files for BankruptcyThis is the largest bankruptcy filing in the history of the United States, at $639 billion. After a weekend of feverish negotiations, potential buyers such as Bank of America (BAC: 6.23, n.a., n.a.%) and Barclays (BCS: 5.3, 0, 0%) walk away, leaving Lehman and its CEO, Dick Fuld, with basically no other options.

At this point, in a span of less than a week, there are massive deals being brokered, and the Fed actually bails out AIG. That is where the deal gets hairy, where does this 85billion go? Who is getting the tax payer money?
- Sept. 16: Government Announces $85 Billion Emergency Loan to Rescue AIGFeds say a failure of the company could be devastating to the financial markets as well as the economy. This is in exchange for a nearly 80% equity stake in the company.

Seems like a smart deal by Barclays, don't bail out Lehman, but pick up their assets after the bankruptcy for fractions on the dollar. Who took the brunt of the losses that Lehman made? During the bankruptcy hearings, there were probably a lot of creditor's that demanded their money. So the buyer's of Lehman's got a great deal and creditor's paid for those gains.
- Sept. 17: Barclays Makes Deal With Lehman to Buy North American Banking DivisionThe British bank, which had passed on buying Lehman before it filed for bankruptcy, picks up the failed firm's North American investment banking and trading operations for $250 million.

This is when it gets very interesting. the bail out plans start coming out where the taxpayer now starts buying out the so called "toxic" assets. Those mortgages that were based on subprime lending, that have no chance of being paid off and are insured to multiple banks who have swapped them around like hot potatoes. The "too big to fail" concept starts to show its self that unless these assets are bought by the government, there could be a complete collapse of the financial system and credit could completely stop flowing and the panic could spread further. But based on the events leading up to this decision, the question is who are the players that are going to get this money? Are they the executives and the board members of the banks that purchased these bad products, are they the so called strong banks that are coming into save the day? Are they international banks that are going to get US tax dollars? The fear of God was presented to Congress and there is not really a chance to delibrate due to the urgency.
- Sept. 19: Bush Administration Announces Bailout Plan to Confront CrisisCongress is asked to give the administration new powers to execute a plan that could cost taxpayers billions to buy toxic debt and bad mortgages. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Paulson hold meetings with lawmakers over weekend to convince them to approve the measures.

Goldman and Morgan Stanley become the gate keepers for the Fed to put US taxpayer money into buying bad assets. Why do these banks get the safety net of the government, while the auto industry, the retail industry, the tax payer not get any saftey against risk? It makes sense that the financial system posses the biggest risk, but that is due to an unregulated environment, now the element of riks doesn't exist for banks.
- Sept. 21: Goldman Sachs, Morgan Stanley to Become Bank Holding CompaniesThe Federal Reserve approves transformation of Morgan Stanley (MS: 23.88, n.a., n.a.%) and Goldman Sachs (GS: 98.9348, n.a., n.a.%) into bank holding companies from investment banks in order to increase oversight and allow them to access the Fed's discount window.

- Sept. 23: Bernanke and Paulson Testify on Capital Hill on BailoutThe Fed Chairman says, “If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.”
- Sept. 24-27 and Maybe Beyond: Bush Works With Legislators on Bailout PlanThe President asks Barack Obama, John McCain, and Congressional leaders to meet and discuss rescue legislation. Congress works to hammer out legislation that's acceptable to enough interested parties to pass and, hopefully, be successful.

- Sept. 26: Washington Mutual Becomes Largest Thrift Failure With $307 Billion in AssetsJPMorgan (JPM: 25.13, n.a., n.a.%) agrees to pay $1.9 billion for the banking operations, but doesn't take ownership of the holding company.
- Sept. 29: Citigroup Acquires Wachovia's Banking OperationsThe FDIC helps broker a deal allowing Citigroup (C: 2.53, n.a., n.a.%) to buy the bulk of Wachovia's (WB: undefined, undefined, undefined%) banking operations for $2.1 billion in stock. At the same time, several European banks are nationalized or infused with huge amounts of cash to keep them running.

At this point, the enormous bail out bill needs to be enacted to ensure that the financial system does not cause a Depression. All the money that has been spent to this point, where is the accountability for that expenditure? It feels like very rich Wall Street insiders ensured that they did not bear the risk of having their fortunes taken away from them, but did not necessarily bear the burdent that they caused by taking the very aggressive risks in managing the mortgage backed securitys and credit swaps. New regulation needs to be put in place, and those that took these risks and took the government bail outs should be responsible for paying them back or lose their assets for making those monumental bad bets.
Bailout Package Put Up for House Vote Is Rejected 228-205The $700 billion rescue bill is defeated in the House of Representatives, despite of warnings from the president, as well as leaders in both parties, that the legislation is necessary to stave off a meltdown.
Dow Falls 777.68 Points; Largest One-Day Point Drop in HistoryThe index sees its largest one-day point loss ever after the House votes down the rescue plan. The S&P 500 has its largest point drop ever and second-largest percentage drop in history.