It is amazing to see the sheer ability of Wall Street types to lie in action. The banks were bailed out in many ways, but a major way was the $144,000,000,000 given to AIG. This money went primarily to the largest banks in the U.S., like Goldman, Morgan Stanley.
From Talking Points Memo
Goldman CFO David Viniar tells the Times:
"We just think that operating our business without the government capital would be an easier thing to do. We'd be under less scrutiny, and under less pressure. Not that we'd be out of the public eye; we're still going to be in the public eye."
To be clear:
The money we gave to AIG went directly to Wall Street banks. The Wall Street banks made unsecured trades in an unregulated market that should have resulted in massive losses for the Wall Street banks due to their lack of due diligence. We bailed them out with over 100 billion dollars cash money, not counting TARP, a series of rate cuts, and other money given to them
If left to market forces, Goldman would have lost up to $20B more in the last year.
The U.S. government has given AIG a over a hundred billion dollars. If the government had not given this money to AIG, then they would have defaulted on trades they made with Goldman Sachs. Goldman Sachs did not vet their trading partners to verify they could pay.
Incredibly, many people think that the money given to AIG was not just money handed over to Wall street. These people do not understand that derivatives trades net to zero. That is, for every winner, there is a loser of an equal amount.
So when AIG lost that money, somebody had to make that money. That "somebody" who made this money were the major investment banks and associated hedge funds. But because they chose a counterparty that couldn't pay, we gave them the money.
Without the U.S. taxpayer supporting AIG, we would not have a functioning financial system, and the 6 largest banks in the U.S. would be undeniably bankrupt.