Hedge funds to America: Thanks for all that AIG money!


Billions of taxpayer dollars that the U.S. government gave to AIG (AIG) to prop up the insurer could end up in the pockets of hedge funds that bet on a falling U.S. housing market, according to a story in the Wall Street Journal. No one knows how much will end up in the pockets of hedge funds or which hedge funds will benefit right now, but what is known is that $52 billion of taxpayer money has been spent to cover AIG's housing-related bets.

Until AIG exited the market in 2006, "AIG was by far the single largest ultimate taker of risk in the [subprime mortgage] CDO space," a senior investment banker whose firm bought credit protection from AIG told the Journal. Essentially, the documents that the Journal has unearthed show that Wall Street banks were middlemen in trades with hedge funds. AIG insured those trades and was left holding the bag on billions of dollars of assets tied to souring mortgages.