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AIG: Billions Dished Out in the Shadows
This is crazy! Forget the bleating of Rush Limbaugh; the problem is not with the quite reasonable and, if anything, underfunded stimulus package, which in any case will be debated long and hard in Congress. The problem is with what is not being debated: the far more expensive Wall Street bailout that is being pushed through—as in the case of the latest AIG rescue—in secret, hurried deal-making primarily by the unelected secretary of the treasury and the chairman of the Federal Reserve.
Six months ago, we taxpayers began bailing out AIG with more than $140 billion, and then it went and lost $61.7 billion in the fourth quarter, more than any other company in history had ever lost in one quarter. So Timothy Geithner and Ben Bernanke huddled late into the night last weekend and decided to reward AIG for its startling failure with 30 billion more of our dollars. Plus, they sweetened the deal by letting AIG off the hook for interest it had been obligated to pay on the money we previously gave the company.
AIG doesn’t have to pay the 10 percent interest due on the preferred stock the U.S. government got for the earlier bailout funds because that interest will now be paid out only at AIG’s discretion, which means never. The preferred stock, which got watered down, carried a cumulative interest, meaning we taxpayers would have recaptured some money if the company ever got going again, but that interest obligation was waived in the new deal.
We’ve already given AIG a total of $170 billion—an amount that dwarfs the $75 billion allocated to helping those millions of homeowners facing foreclosures. And more will be thrown down the AIG rat hole because President Barack Obama is blindly following the misguided advice of his top economic advisers, who insist that AIG is too big to fail.
“AIG provides insurance protection to more than 100,000 entities, including small businesses, municipalities, 401(k) plans and Fortune 500 companies who together employ over 100 million Americans,” the joint Treasury Department and Fed statement declared while insisting that for that reason, plus the “systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high.”
What about the cost of inaction by Treasury and the Fed before this meltdown? If AIG were so important to the American economy, shouldn’t government regulators have been looking more closely at its activities? They couldn’t then, and even now they don’t understand what AIG has been up to, because the company was allowed to operate in an essentially unregulated global economy in which multinational corporations have their way. As the Treasury/Fed statement concedes: “AIG operates in over 130 countries with over 400 regulators and the company and its regulated and unregulated subsidiaries are subject to very different resolution frameworks across their broad and diverse operations without an overarching resolution mechanism.”
Oh, really? And you’re discovering that only now, when you’re making us bail AIG out? It wasn’t that long ago that a couple of hustlers operating out of an AIG office in London were going wild making money off selling insurance on credit default swaps that no one could understand, but the company execs loved those huge profit margins. To challenge their maneuvering, as some in Congress attempted, was said by their defenders, including Geithner, to put them at an unfair disadvantage in the world market. Ignorance was bliss … until the bubble burst.
This was all belatedly conceded by Bernanke in his Senate testimony on Tuesday: “AIG exploited a huge gap in the regulatory system. There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company, made huge numbers of irresponsible bets—took huge losses. There was no regulatory oversight because there was a gap in the system.”
AIG used to be in the conventional insurance business, covering identifiable risks it knew something about, until it took advantage of deregulation and a lack of government surveillance to come up with contrived new financial products. Even Maurice Greenberg, the man who built AIG from the ground up over a span of 40 years before he was forced out amid corruption charges in 2005, admits that he didn’t understand the newfangled financial gimmicks that the company was peddling. This week, claiming he too was swindled, Greenberg sued in federal court, charging the AIG execs who forced him out with “gross, wanton or willful fraud or other morally culpable conduct,” over the credit default swap portfolio that was part of his settlement.
U.S. taxpayers now have ownership of almost 80 percent of AIG, but with the company’s once solid traditional insurance business now suffering a steep loss of consumer confidence, it’s not likely that even the formerly healthy parts of the company will be worth much. What we have here is all pain and no gain for the taxpayers roped into this debacle, which is proving to be the story of the entire banking bailout.
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18 Comments so far
Show AllIf we are going to bail them out again after AIG breaking the record for the largest loss of any corporation in US History, we need to nationalize AIG. The problem seems to be that we still dealing with the AIG executives that got their company into this mess. They need to be pushed aside, moved out of the loop for all decision making.
And they have just hired public relations experts out of bail out money!
"If we are going to bail them out again after AIG breaking the record for the largest loss of any corporation in US History, we need to nationalize AIG. The problem seems to be that we still dealing with the AIG executives that got their company into this mess. They need to be pushed aside, moved out of the loop for all decision making."
You are absolutely right.
Thank you for that I could not have ranted better.
We should bail out the core banking system which America and the world needs to function but we are bailing out the investment banking system which has pillaged the future, gambled and lost.
We should bail out the core insurance industry which has obligations to living entities but we are bailing out the bad gambling debts made using profits of the future.
These people have damned our future and our childrens future and they need to be called out.
“AIG operates in over 130 countries with over 400 regulators and the company and its regulated and unregulated subsidiaries are subject to very different resolution frameworks across their broad and diverse operations without an overarching resolution mechanism.”
The "overarching resolution mechanism" is and always has been to become "too big to fail", knowing that the U.S. Government would be more than willing to cripple their Middle Class taxpayers to prevent the other 129 countries from absorbing any losses.
It's called: "Planned U.S. Middle Class Impoverishment".
This country is headed for the worst Depression imaginable!
Google search "AIG 9/11".....
I just listened to a radio interview with Richard Andrew Grove, an AIG whistleblower. He was working on software that was designed to be sending billions of dollars overseas for AIG and when he started asking questions, he was fired. He was directed to deliver his evidence to the 96th floor of one of the twin towers on the morning of 9/11/2001.
Enron, allegedly, had over 1000 off-shore accounts and "ghost" companies and nobody did an audit or found all the stolen money. Did you ever notice, nobody uses the word stole, they use fraud? "Kenny Boy" stole billions.
No one wants to go find all the accounts and companies AIG has. AIG had the World Trade Center Policy, and was able to sell that policy to another insurance company before 9/11....If you research the Greenberg Family, you will discover CIA connections, Council on Foreign Relations (Bilderberg Club) connections, connections to the law firm that worked for George W in the 2000 election case with an added connection to Justice Scalia.
What has been going on is nothing but the theft of more than a trillion dollars from the U.S. Treasury and Federal Reserve and nobody wants to stop it.
The entire legal and "justice" and financial systems are now built totally on a foundation of fraud. If you have enough money and the right connections there is nothing illegal for you, "justice" is just another commodity to be purchased and your thefts receive winks and nods from all the other good old boys in the club. I have NO RESPECT left for law. None. Nada.
Just for historical accuracy it's worth noting that virtually ALL the people who originally caused the banks to fail were.... conservative republicans.
Who ARE these people?!?
They are the too big to fail, the ones who will come out of the debacle they created for us just fine. Hank Greenberg was at the NY Fed helping look the other way. If you look at AIG Aviation, you find luminaries like William Cohen who is also on the board of M.I.C. Industries with General Haig's partner, a US-CIS pipeline venture in Central Asia, corporate headquarters in Reston, VA., Richard Armitage advises, Gen. Shelton, formerly of CACI - in other words, important people. The people who supposedly exist to keep us safe, but apparently aren't happy with their pension plan from us.
Part of what is amazing about this is that no one has been arrested. No one did anything wrong. It was all a big oopsie. You would think that a few bank execs would be looking at fraud charges for having sold a product that due diligence would have shown to not be solid. You would think that insurance companies who sold insurance they couldn't back up would be guilty of a fraud. But no one is going to jail, unless you count Madoff's house arrest as punishment.
Once again we're told the tale of the lone gunman on the grassy knoll, or in this case the lone trader. One bad apple in London. Well, why hasn't he been arrested? If we're paying off this one guy's bad bets, who is on the other end? Who is getting paid with our social security, our healthcare, our prosperity and our future?
It's like a black hole and it hasn't been fixed. It's almost like the intentional destruction of America. But of course if this were an attack, you know like a terrorist attack, that other bloated tick of an agency, Homeland Security, would have defended us. Ha.
Sioux Rose
PF: Naomi Klein sets forth a thesis where the ruination of the PEOPLES' money is part of a process of control sought by elites. The manuevering of the US economy, by first advancing a housing inflationary bubble, only to deflate it while deregulating banks so that all this "casino style economics" was allowed to play out with either federal guarantees on bank losses or this nonsense with AIG... sure does seem like a plan to take this economy down. And it had lots of helpers, the insiders ARE the government officials. As I said a ways back, why rob the bank when you can become it (a more genteel way of seizing assets).
Socialized debt! I am so happy for them.
The article here only briefly mentions Credit Default Swaps (CDS's): " It wasn’t that long ago that a couple of hustlers operating out of an AIG office in London were going wild making money off selling insurance on credit default swaps that no one could understand, but the company execs loved those huge profit margins."
AIG was big on selling those.
Most of the media is still stuck in the old cognitive paradigm: Journalists and achors often seems to imply that it's all still about sub-prime and NINA loans.
But the total market for those is far smaller than the bail-outs so far. Some estimates put the sub-prime market at 1.3 trillion, and the CDS market at between 45 and 60 trillion.
We need to learn more about the speculation, the gambling, the short-selling that was going on with CDS's, a HUGE market, in the tens of trillions.
This was not like mere "insurance" (the more frequent analgoy) to cover potential losses, the way that we get one insurance policy to cover potential loss of our car. This was MANY people, betting on the same mortgages and bonds.
Imagine you, and many of your neighbors, all buying an insurance policy on your car; at some point, you have more incentive to total the thing than to drive carefully.
Some people are getting rich on this, via taxpayer bailout money, while the economy crashes.
Some may have wanted it to crash so that they could cash in. Thanks to the Republicans' free market ideology and Bill Clinton and the Democrats signing a bill that had the deregulation (and 'Futurization') of the market slipped in, it may be highly unethical, but it may also have been perfectly legal.
Sen. Bernie Sanders of VT wanted an investigation. It should have started last month.
If Bush could, after 9-11, close the stock market and close down all short-selling, you would think that congress and the president could at least temporarily ask for an end to all selling and payments on CDS's until the causes of the financial mess are sorted out.
I suspect that the sub-prime mess and NINA loans were just the trigger, and the CDS market was the real dynamite.
Google "Credit Default Swaps 60 minutes huffington post" and you'll find a 60 minutes show that starts to scratch the surface. It's a good start.
Roughly doing the numbers, AIG has caused negative externality costs that have already cost us (the U.S.) $163B (and more will be needed)
If we estimate that AIG's additional government coverage of their negative externality costs may go to $270B (for easy math), then that would equal 10% of AIG's $2.7T of CDS contracts (and many times what AIG ever made in phony privatized profits).
Scaling up (at the AIG 10% rate) to the whole CDS 'debt bomb' mess (or what Buffett aptly calls CDS financial WMD explosion), this would mean that the entire CDS disaster based on an estimated total of $55Trillion CDS contracts would imply a $5.5T negative externality cost imposition on world governments --- or on the world 'public sector' in order to 'bailout' this privatized looting via production of these negative externality cost creating products (CDSs).
Naturally, if the US ponies up about $270B to bailout AIG's 4.9% (call it 5%) of the world CDS contract base, this also suggests a similar scale-up to 20 times this figure (or $5.4T) to bailout all the CDS contracts known to exist in the world (where ever they are hidden).
Two points:
1. As far as making a little short term, privatized faux profit by creating a product with massively higher negative externality costs --- these financial bandits make the cigarette industry look like pikers, for only killing a few tens of millions of people and causing the health care system to go into systemic collapse.
2. It might be a good thing for public, democratic governments to require analysis and regulation of such so-called 'innovative' products that can be reasonably judged to create massive 'negative externality costs' BEFORE they are allowed to go into so-called production!
The later point suggests that America's founding fathers (having seen the destructive force of the royally chartered East India Corporation) may have had a pretty good idea in starting our country with the requirement that any joint financed corporation be carefully chartered to insure that only a limited and well understood "public good" be pursued, or else the charter for that corporation would be killed off ---- before we would be killed off. Great idea, but it may be a bit late today.
AIG? Can't we just print $50 trillion dollars and give it to them and tell them thats all their getting? I mean thats what the US does routinely, print money. I just don't see the problem. Just print more money and hand it out to all the failing banks and car companies and any other too large to fail corporation. Problem solved. Next?
There's been an effort to portray Joe Cassano in AIG's Financial Products office in London has a rogue trader who brought the company down. Nothing could be further from the truth. Much of the problem might grow out of Hank Greenberg's earlier run in with Eliot Spitzer. Suits were settled for peanuts, but Greenberg was ousted from AIG in 2005. He was not happy. Now, I think he's getting even. For one thing, while we the people are left holding his now-sinking Titanic, he's siphoning off commercial accounts to a new business. Not only is he not in jail, he's starting another insurance business! But back to AIG and the theory that it was a lone gunman on a grassy knoll that brought this otherwise respectable institution down.
On the London office's (AIG-FP) website,you will find links to odd things like taking part in the acquisition of London City Airport and the buyout of Kinder Morgan. When you start looking at the various entities involved, you see the same people over and over. Joe Cassano was far from lonely.
One of the more interesting ratholes is that AIG-FP created a unit to serve hedge funds. It was overseen by Rob Leary, head of AIG-FP's North American Investor Group. This group covered pension funds, money managers, foundations and endowments - and hedge funds. There was also an AIG-FP Private Funding Cayman Ltd., which was signed by Robert G. Leary in February 2007.
So who is getting our tax money? How long will we be bled to fill a bucket that still has holes in the bottom? And is there ANYBODY in our government anywhere who still stands for the people and the rule of law?
The ironic aspect of all of these problems is simply stated by this one truth.
The source of all of this "money" is and was the "people". IF the "people" truly want the "delivery of justice" they must take control.
The problem began when "the people", answering to the "vote" allowed just a few to take control of their "money". Now the sheer volume of the amounts that these 'few' have been able to "skim' would stagger the imagination of even the most creative.
The only answer is that the "people" take control of their money. Confiscate the vast wealth that these people have skimmed and scammed. Hold them accountable, and even to the length of opening "Alcatraz" back up just for these.
I was in Texas just a few days ago when on the TV a commercial appearance by the former Pres. G.H.W. Bush opens with him inviting the viewer to "his favorite Island getaway, "Galveston"----change the concept slightly----and he along with GW could have "Alcatraz" as an "Island getaway"------in fact if enough people were "out there hunting them down", they might very well be thankful for an "Island getaway on Alcatraz" just to stay alive one more day.
The reality is that it is entirely up to the people of the USA to make sure that justice is served FOR them, and TO the offenders.
A recent article in CD revealed that there were over 5 million US Citizens on "probation/supervision" and another two or more million in prisons for various crimes; yet the citizens of the USA will put into the highest office in their country a --thus far--- unapologetic world class criminal; and do it twice.
Good luck America, you really need it.