Those banks are counterparties to a slug of the paper that AIG wrote. They did not do their due diligence on AIG. They were only in it for the money, to the tune of billions in profits.
Now the American taxpayer is going to go on the hook for another $300 Billion (notional).
This is getting old.
From Bloomberg via Calculated Risk:
AIG Rescue May Include Credit-Default Swap BackstopAmerican International Group Inc. may get a backstop from the U.S. to protect against further losses on credit-default swaps, according to a person familiar with the matter.There you have it.
The federal guarantees may be included in New York-based AIG’s restructured bailout ...