Ohio Cities Received Half-Billion from AIG Bailout

AIG, via The New York Times this evening, announced its counterparties to the bailouts in a news release (available at the NYT site).  More surprisingly, it announced that Ohio municipalities (and those elsewhere) are a not insignificant party benefiting from the bailout.

In the document, the relevant part is the discussion of Guaranteed Investment Agreements:

Municipalities in the states listed on Attachment C received a total of $12.1 billion from AIGFP between September 16, 2008 and December 31, 2008 in satisfaction of Guaranteed Investment Agreement (GIA) obligations.  GIAs are structured investments with a guaranteed rate of return.  Municipalities typically use GIAs to invest the proceeds from bond issuances until the funds are needed.

Attachment C reveals that municipalities in Ohio with AIG GIA investments resulted in the state receiving the fourth highest amount in payments between Sept 16 and December 31, 2008.  The total amount paid to Ohio municipalities is one-half billion dollars.  That’s $500,000,000 that Ohio cities received in the last quarter of 2008 from pre-existing investments in AIG’s hands.  Only California, Virginia and Hawaii municipalities received more money from AIG during this time.

I don’t know much about GIAs (more often termed as guaranteed investment contracts), but from what I can find this certainly is a lot of money that Ohio cities had guaranteed by AIG.  Based on the fact that AIG included these payments in the news release, I have to believe that AIG views this as money that potentially could have been lost by the municipalities if it had not been bailed out.  From my quick research, as I suspected, these instruments only are guaranteed insofar as the insurance company that issued them can do so.

So, which cities received this money, and how do cities make determinations about what GIAs are investment-worthy?  The ratings agencies?  Ha.

Let’s make this clear.  Although I discussed Ohio in the course of this post, $12.1 billion in payments issued to municipalities by AIG are at issue across the country.  That’s more than $12 BILLION that potentially was at risk in municipal funds invested in “safe” products that bear the misleading name “guaranteed” in them.

[Slightly updated to provide some additional information about GIAs.]

[UPDATE: Although Josh Marshall reports that the $12.1 billion went to municipalities in 20 states, that is not true.  The $12.1 billion went to an unknown number of states; $7 billion went to the top 20 states, which are the only ones listed.  The remaining 30 states had less than $100 million each in municipal GIA payments, amounting to an additional $5.1 billion in municipal payments.  (I realize that this creates a mathematical quandary -- where the remaining 5.1 billion has to be split among at least 52 states (of a remaining 30) -- but I didn't create the chart; AIG did.  What is this?)]

[The Washington Post story, A1 Monday, is here.]

* * *

Unlike Bank of America (covered here at Law Dork, 2.0), AIG explicitly referenced the importance of transparency in its release:

American International Group, Inc. (AIG) recognizes the importance of upholding a high degree of transparency with respect to the use of public funds.  As a result, after close consultation with the Federal Reserve, AIG is disclosing information identifying certain credit default swap counterparties, municipal counterparties and securities lending counterparties.

(Of course, this is happening at the same time the AIG is taking a hit for planned bonus payments.)

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