Is the momentum building for an investigation into the real beneficiaries of AIG's latest bailout?

Earlier this month, the Treasury Department announced it was rescuing the fallen insurance giant yet again, bringing the total amount of taxpayer assistance given to the firm since last September to $170 billion. It soon became clear that much of that money -- over $49 billion, to be exact -- was going right through AIG to the counter-parties on its credit default swaps, both American banks like Goldman Sachs, and foreign ones like DeutscheBank.

Defenders of the move have argued that not giving the counter-parties this indirect bailout would have risked a wider financial collapse.

But the level of analytic rigor that the government applied in coming to the conclusion that it had to bail out the counter-parties has never seemed particularly high. And over the weekend, Goldman Sachs -- the biggest American counter-party to AIG's CDS deals -- undermined that argument, when it publicly announced that, because they hedged their CDS bets, they'd have been fine without that backdoor bailout. A Goldman exec bolstered that claim yesterday, telling (sub. req.) a conference hosted by the Wall Street Journal that "We would have been 100 percent fine," had AIG been allowed to fail.

Now, voices both inside and outside government are starting to call for a fuller exploration of the process by which policymakers determined that bailing out AIG's counter-parties was necessary.

The day after Goldman's announcement, former New York governor Eliot Spitzer -- who made his name as the state's Attorney General going after Wall Street fraud -- called, in a column on Slate, for a federal investigation of the counter-party payments from AIG to Goldman -- $12.9 billion in all.

Wrote Spitzer:

But what were the government officials possibly thinking? The only rationale for what we should call the "hidden conduit bailout" to AIG's trading partners is that the cascading effect of AIG's inability to pay would have been devastating. But Goldman has now said very clearly there would have been no cascade. Not even a ripple.

Is the same true of AIG's other counterparties, including several foreign banks? What examination of the impact of an AIG failure did federal officials undertake before deciding to spend countless billions bailing out AIG and its trading partners.

Then yesterday, TPMDC reported that Rep. Elijah Cummings (D-MD) is calling for an inspector general investigation of AIG's counter-party payments. Cummings noted the same seeming contradiction that Spitzer had -- that is, between Goldman's statement that it would have been fine had AIG collapsed, and the government's apparent belief that the counter-parties were seriously at risk.

And a staffer for the House Oversight Committee told TPMmuckraker yesterday that that committee's broad investigation of the causes of the financial collapse and the government's response to it, which has been going on since last fall, would soon consider a version of that same question: how and why did Treasury make the decision to bail AIG out? As TPMmuckraker reported yesterday, the committee will get to ask former AIG chief Hank Greneberg about that, and related issues, at a hearing next week.

Of course, it looks like a key factor here may have been the memory, in policymakers' minds, of what happened when they decided against bailing out Lehman, whose collapse triggered the start of the current crisis. There appears to have been an understandable fear that AIG's failure could have had similar, or greater, knock-on effects. Still, we've been given minimal information about the factors that went into the decision so all we can do is guess.

But from the looks of things, that may be about to change...

Late Update: Reader J.M.N. makes a good point about the counter-parties bailout, which we should have noted originally:

I have no doubt that Goldman would have been all right had it not received bailout money through AIG. I am much less convinced that all of the other counter-parties would have survived. Further, evidence that Goldman didn't need the payouts to survive says absolutely nothing about whether anyone else needed them; it's been clear for more than a year that Goldman was in much better shape than just about anyone else on the Street. My guess is that bailing a bunch of them out was necessary. The problem here, and it's one that you really need to address in your comments on the matter, is that I can't think of any legal justification for bailing out the other counter-parties, but not paying off the derivative contracts with Goldman. Even in bankruptcy you wouldn't be able to do that.

And of course, if the point was to rescue foreign banks like DeutscheBank and Societe Generale, that's an even harder position to explain politically, whatever its substantive merits.