A group of Democratic senators, in advance of the G-20 summit in London, are calling on the administration to push foreign central banks to cooperate with the U.S. bailout of the global financial system.
If central banks don't hang together, argue the Democrats, they'll surely hang separately.
"I do think these nations might recognize," freshman Sen. Jeff Merkley (D-Oregon) tells the Huffington Post, "that in order for us to be most helpful down the road, we need to maintain the support of our citizens and that what we did here is completely unacceptable to American citizens."
Merkley, Sen. Sherrod Brown (D-Ohio) and Sen. Ron Wyden (D-Oregon) lobbied the administration last week to push for more action from foreign central banks when it comes to bailing out banks within their own borders.
It might seem self-evident that it is not the American taxpayer's obligation to bail out foreign banks, but it's happening nonetheless. "It seems strange and bizarre and not appropriate for our taxpayers to be bailing out these foreign entities. It seems like the foreign [central] banks should be involved in that," says Merkley.
The same day that American International Group announced it would reward its executives with $165 million in bonuses, it also announced that billions would be sent overseas to foreign "counterparties" who had placed bets with AIG.
While the media and the public threw a fit about the $165 million, tens of billions quietly sailed across the ocean.
And the trio's effort to curb further payments has gotten little traction. "I can't say they've been pounding our door for response one way or the other," says Merkley of his Senate colleagues. The Treasury Department has not responded to the letter and did not respond to a request for comment from the Huffington Post. We'll update this story if and when they do.
"I think for most folks here, their constituents have been far more aware of and upset by the bonus side, which is certainly an appropriate area to be outraged, but I think that's a little easier for folks to get their hands around than the issue that the counterparties were foreign counterparties," Merkley said.
Unless the next round of counterparty payments is overshadowed by another bonus debacle -- hey, anything's possible -- Merkley is sure that the American people won't look kindly on billions headed for foreign banks from AIG.
"Now that we understand who the counterparties are and where the [payments] went, they need to help us out on this," he says of the foreign central bankers meeting in London this week.
Merkley recalls that senators on both sides of the aisle had been pushing for the identity of the counterparties from the Federal Reserve, which initiated the AIG takeover, but "the response was largely, 'Look, we're a little cautious about it because we feel if we disclose the counterparties we may trigger a public reaction equivalent to a run on the bank.' I must say, senators on both sides of the aisle didn't really buy that thinking."
Throughout the financial crisis, the Federal Reserve has been providing hundreds of billions in liquidity for foreign central banks, exchanging dollars for foreign currency.
U.S. negotiators at the summit will need to rely on powers of persuasion, however, rather than threatening serious action, says Merkley. "I think it really is a matter of diplomacy. Are there tools? Yes," he said. "I think, though, that I don't really picture the US saying, 'We're not going to talk to you about any transactions that effects international liquidity or unfreeze the markets unless you do x-y-z.' I don't think we're likely to use that kind of leverage. We need their help, too. We're all so deeply intertwined."