AIG: Our tax dollars at work.....

weslinder · Nov 10, 2008

Turns out, maybe buying AIG wasn't such a good idea after all. Whodathunkit?

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/02/AR2008110202150_pf.html

Effectiveness of AIG's $143 Billion Rescue Questioned

By Carol D. Leonnig
Washington Post Staff Writer
Monday, November 3, 2008; A18

A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.

AIG declined to comment on the matter.

Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.

"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."

The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.

Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.

In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.

"No one else benefits," former AIG chief executive and major shareholder Maurice R. "Hank" Greenberg wrote to AIG's current chief executive on Thursday. "Unless there is immediate change to the structure of the Federal loan, the American taxpayer will likely suffer a significant financial loss."

Another concern is that in this depressed market, AIG, and the taxpayers that now own 80 percent of the company, will lose coming and going.

The company may be forced to borrow additional federal funds for rising payouts to counterparties. Neither the government nor AIG is releasing information about the specific amounts paid to individual firms, but numerous credit experts say that the value of those mortgage assets is probably declining every week. That means AIG has to pay a higher price as part of its guarantees.

The company also may be forced to sell many more assets at low, fire-sale prices. As part of its loan deal, AIG was to sell some assets -- valued at $1 trillion before the crisis -- to raise cash to pay off the loan.

AIG's Financial Products division is the primary villain in the company's free-fall. It made tens of billions of disastrously bad bets on mortgage investments but may not have carefully hedged those bets or properly estimated its risk. The company's rapid burn of $90 billion also suggests that it grossly undervalued its obligations to counterparties in a worst-case scenario.

In February, internal notes show, board members discussed a growing dispute between AIG Financial Products and Goldman Sachs about the value of those assets when Goldman called for AIG to post collateral. AIG's chief financial officer warned of "Goldman's acknowledged desire to obtain as much cash as possible." But AIG's external accountants warned that it was they who alerted management to the dispute, not AIG Financial Products, and that the division was not properly considering the market in its pricing.

Rutledge warns that because there has been no public disclosure of AIG's payments to counterparties, it is impossible to know whether the pricing it is using now is proper.

The Federal Reserve and its advisers have acknowledged privately that things are not going according to plan.

As AIG has rapidly eaten through the loan money, the Fed has twice expanded its original $85 billion bailout -- which itself was the largest government bailout of a private company in U.S. history. Earlier last month, the Fed reluctantly gave AIG $38 billion more in credit for securities lending to try to keep the firm from drawing down its first Fed loan too quickly.

Then on Thursday, the Fed agreed to let AIG borrow $20 billion from a larger commercial paper bailout fund it had set up days earlier for all institutions that lend money to each other.

If the company had filed for Chapter 11 bankruptcy protection, AIG could have frozen the crippling collateral calls, and shareholders would have had a chance at recovering some value from the company's 80 percent drop in stock price from earlier this year, said Lee Wolosky, a lawyer for AIG's largest shareholder, Starr International.

"AIG is nothing more than a pass-through being charged 14 percent interest," Wolosky said. "Company assets are eroding on a daily basis; asset sales have not begun and can only be at fire-sale prices in the current market. "

But David Schiff of Schiff's Insurance Observer said he could not see how bankruptcy would have been a better solution.

"The point isn't to save AIG; it's to save the U.S. financial system. I think they were afraid to find out who else goes under if you let AIG fail," he said. "But right now, no one knows if this is going to work."
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professorjay · Nov 10, 2008

weslinder said:

Turns out, maybe buying AIG wasn't such a good idea after all. Whodathunkit?

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/02/AR2008110202150_pf.html
Click to expand...

More disgusting news:

KNXV Discovers $343,000 Secret Gathering, AIG Signs and Logos Hidden

November 10, 2008

Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.
Brian Ross investigates the AIG executives' latest "business seminar."

Reporters for abc15.com (KNXV) caught the AIG executives on hidden cameras poolside and leaving the spa at the Pointe Hilton Squaw Peak Resort, despite apparent efforts by the company to disguise its involvement.

"AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property," KNXV reported.

A hotel employee told KNXV reporter Josh Bernstein, "We can't even say the word [AIG]."

A company spokesperson, Nick Ashooh, confirmed AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff.

"We're trying to avoid confrontation, keep our profile low," said Ashooh. "Some of our employees have been harassed."
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Invisible Fan · Nov 10, 2008

weslinder said:

Turns out, maybe buying AIG wasn't such a good idea after all. Whodathunkit?

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/02/AR2008110202150_pf.html
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This is beginning to look like Japan in the 90s.

glynch · Nov 10, 2008

Fatty FatBastard said:

The problem with that, like it or not, is that if these incentives aren't honored, the agents will simply switch to another carrier who will honor them.

Essentially, these "perks" are part of the agent's salary package. Taking them away would be taking away part of their salary, and you simply cannot do that to the independent agents who bring in a good chunk of your revenue, and can take away on a whim.
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I agree, but funny that everyone on the auto thread says screw the auto workers and their pensions and health care and union. Lots of love for insurance salesmen. I guess it is just that office workers completely dominate this forum.

BetterThanEver · Nov 10, 2008

http://www.reuters.com/article/innovationNews/idUSTRE4A92FM20081110?sp=true

AIG gets $150 billion government bailout; posts huge loss

WASHINGTON/NEW YORK (Reuters) - The government restructured its bailout of American International Group Inc, raising the package to a record $150 billion with easier terms, after a smaller rescue plan failed to stabilize the ailing insurance giant.

The Federal Reserve and the Treasury Department announced the new plan on Monday as AIG reported a record third-quarter loss of $24.47 billion, largely from write-downs of investments.
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giddyup · Nov 10, 2008

glynch said:

Lots of love for insurance salesmen.
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Thank you; we need it. Ironically, I just got appointed with AIG. Anyone want to buy some life insurance?

weslinder · Nov 10, 2008

glynch said:

I agree, but funny that everyone on the auto thread says screw the auto workers and their pensions and health care and union. Lots of love for insurance salesmen. I guess it is just the office workers completely dominate this forum.
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I don't know if FFB's reaction is a barometer of the board's feelings. But even if it is, it could be a measure of bailout fatigue. Those who bought Barney and Hank's fear mongering and their thesis that the wise Treasury Secretary could save us get tired of it when every CEO and his brother come in with their hand out.

MoonDogg · Nov 10, 2008

glynch said:

I agree, but funny that everyone on the auto thread says screw the auto workers and their pensions and health care and union. Lots of love for insurance salesmen. I guess it is just that office workers completely dominate this forum.
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It's more like people that don't work for AIG(or for the auto companies) that dominate this board.

ima_drummer2k · Nov 12, 2008

professorjay said:

More disgusting news:

November 10, 2008

Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.
Brian Ross investigates the AIG executives' latest "business seminar."
Click to expand...

Again.....these were NOT AIG EXECUTIVES. They were independent financial planners that AIG was trying to get to sell their products.....so AIG could generate more revenues.......so they can pay back the loan. I don't know how some people can think that AIG suspending revenue generating activities is going to help the taxpayers get their money back faster.

NEW YORK, Nov 11, 2008 (BUSINESS WIRE) -- Edward M. Liddy, Chairman and Chief Executive Officer of American International Group, has issued the following statement:

"Recent news reports have grossly mischaracterized an American International Group seminar for 150 independent financial planners held in Phoenix last week. The financial planners are not AIG employees. In addition, the cost to AIG for this event was minimal. More than 90 percent of the costs were paid either by sponsors or by the independent financial planners themselves.

It is essential for AIG to conduct seminars of this kind to keep independent financial planners abreast of investment products and services including those offered by AIG. The independent financial planners are responsible for generating almost $200 million in revenue this year for AIG as of September 30th.

On October 10, I issued a directive to all AIG employees and subsidiaries to reduce expenses and conserve cash, including cancelling all nonessential conferences or meetings, unnecessary travel and excessive overhead. Since then, we have canceled more than 160 events. We conducted a top-to-bottom review of all expenses of the Phoenix meeting in advance and found that it was consistent with my October 10th directive. This conference was approved because it provides the kind of communication we must conduct with the people who sell our products if we are to be successful and repay the U.S. taxpayer."

LINK
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It's very un-nerving to see how badly the media had been misrepresenting all of this. It really does make you wonder what else they so blatently misrepresent that we don't know about.

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AIG: Our tax dollars at work.....

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