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The debate on the validity of propping up crippled companies such as American International Group (AIG) intensified with this week’s $30 billion check that the Treasury handed to insurer. This was the fourth bailout to AIG, which already has put more than $170 billion in US taxpayers money at risk, and by all indications won’t be the last considering it’s $62 billion quarterly loss the co. posted in the final quarter of FY2008. However, the following development, as reported by The Wall Street Journal late Friday, should raise more questions and further scrutinize the idea of AIG as “too systemically important in the financial system to be allowed to fail.”

According to the Journal - the beneficiaries of the government’s bailout of AIG, or as some refer now to the international insurer: ” the Fed’s Bailout Black Hole” - include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

The list includes institution such Goldman Sachs Group (GS) and Germany’s Deutsche Bank AG, each of which received roughly $6 billion in payments between September and December 2008, according to a confidential document and people familiar with the matter, the Journal said.

Other banks that received large payouts from AIG late last year include BofA’s (BAC) Merrill Lynch, French bank Société Générale SA. More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley (MS), Royal Bank of Scotland Group and HSBC Holdings.

The names of all of AIG’s derivative counterparties and the money they have received from taxpayers still isn’t known. The Fed Vice Chair Donald Kohn declined in a Senate Banking Committee hearing in Washington on Thursday to identify AIG’s trading partners (it’s a no-brainer - the counterparties to AIG’s Credit Derivatives book will most definitely be the large banks and brokerages). Kohn, however, told lawmakers he would take their requests to his colleagues.

While the government’s rescue of AIG (NYSE:AIG) helped prevent its counterparties from incurring immediate losses on mortgage-backed securities and other assets they had insured through AIG, these non-collateralized CDO bets, considering the fact AIG’s problems keep popping up at an unsustainable rate, should have perhaps been voided by the regulators as opposed to being paid off by the American taxpayers.

Another question deserving now some attention based on this latest report is why was Lehman Brothers allowed to fail, which contributed to AIG's collapse since, if I recall correctly, they were the largest insurer of Lehman’s (CDS) debt?!!!

Source: AIG Bailout Beneficiaries