AIG disclosed payments of > $100B to banks related to its derivative bets

Finally AIG disclosed the names of the counter parties of the CDS contracts it has written. The headline reads that AIG paid out >100B. But in fact, that wasn't exactly final payment. AIG just posted collateral on the CDS contracts that it has sold to those counter parties, Goldman being the No. 1 on the list.

Regardless it is payment or collateral, AIG should not be allowed to write so much CDS contracts without having sufficient capital to back them up. Gambling on CDS should never be allowed for the regulated financial institutions. If investors wanted to gamble, let them do that. But regulated financial institutions have fiduciary obligations to its constituents (depositors in the case of banks, and policy holders in the case of insurance companies).

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Here are quotes from CNNMoney.com:

AIG Reveals Over $100 Billion Of Payments To Banks, U.S. States

March 16, 2009: 07:55 AM ET

LONDON (Dow Jones) -- American International Group said over the weekend it had paid over $100 billion of its bailout funds to U.S. states and international banks including Goldman Sachs, Deutsche Bank and Societe Generale.

The cash was used to cover collateral payments, cancel derivative contracts and meet obligations at its securities lending business after the firm had to be bailed out last year.

Most of the major U.S. and European banks were represented on the list, but AIG (AIG) revealed that Goldman Sachs was the biggest single beneficiary from the payments, receiving $12.9 billion.

Bank of America Corp. and Merrill Lynch together received $12 billion in payments, followed by Societe Generale , which got $11.9 billion and Deutsche Bank , which was handed $11.8 billion.

Payments to municipalities totaled $12.1 billion.

"AIG recognizes the importance of upholding a high degree of transparency with respect to the use of public funds," the group said in a statement.

The group had previously argued that disclosing the identity of counterparties could damage its business relationships or cause competitive harm, but it had come under increasing pressure from lawmakers to provide details.

The remainder of the $173 billion that AIG received from taxpayers has been used to repay debt, boost capital levels at some of its units and fund vehicles created to wind down its derivatives contracts.

Shares in the group, which is now 80% owned by the government, have fallen more than 99% from their peak in early 2007.

The announcement over bailout payments came after AIG became embroiled in a row over bonus payments to employees at the unit that was largely responsible for its near collapse last fall.

The decision to pay around $450 million in bonuses elicited howls of protest in Washington, with key House lawmaker Barney Frank, D.-Mass, calling on the government to examine whether the bonuses can be legally recovered.