Just months after dropping the telltale “A.I.G.” from its sales brochures, the company has leapfrogged its competitors and reclaimed a title it held for many years before its bailout — the top seller of fixed annuities to bank customers.
People buying the annuities in bank branches may be surprised to know they are signing up with A.I.G. The contracts are being offered under the names of two subsidiaries, Western National Life and First SunAmerica. Until last June, they carried the name of A.I.G. Annuity.
The booming annuity sales are a bright spot for American International Group, which must raise cash to pay back the federal government.
But some competitors and consumer advocates are questioning A.I.G.’s comeback, saying its ability to keep drawing federal money is giving it an unfair advantage just a year after its government rescue.
Often sold as alternatives to certificates of deposit, fixed annuities are insurance contracts that guarantee a set rate of return, unlike variable annuities, whose returns may track the ups and downs of the markets.
The people who buy them in banks tend to be looking for something safe, but which pays more than a certificate of deposit. Fixed annuity contracts usually run for many years, and even before A.I.G.’s bailout last year, its customers began to have qualms about tying up their money with a company whose future was uncertain.
Friday, December 11, 2009
Tuesday, December 8, 2009
Five high-ranking executives at American International Group Inc. said last week they were prepared to quit if their compensation is cut significantly by the insurer's government overseers, according to people familiar with the matter.
The threat is the latest in the running fracas between AIG and the government's compensation czar, Kenneth Feinberg, who is charged with setting pay limits for top executives at companies receiving the most federal bailout money.
The AIG executives who notified the company they were prepared to resign include its general counsel, Anastasia Kelly, and the heads of some of its largest insurance businesses.
Saturday, November 7, 2009
Can we get some of our money back now? Though clearly they have a long way to go to pay it all back.
The earnings from group, the largest recipient of US government aid during the financial crisis, were better than expectations.
Excluding special items, the profit was 2.85 dollars per share, compared with a market forecast of 1.98 dollars per share.
It was the second consecutive quarterly profit for American International Group after the prior quarter's earnings of 1.8 billion dollars.
"Our results reflect continued stabilization in performance and market trends," said AIG president and chief executive Robert Benmosche.
"AIG employees are working to preserve the strength of our insurance businesses in a challenging market by working closely with our distribution partners, with third quarter 2009 showing signs of stabilization."
AIG was the largest single recipient of US bailouts with the government pumping more than 170 billion dollars into the firm to keep it afloat and taking a controlling stake in the group in the process.
Once the world's biggest insurer, AIG was on the brink of bankruptcy in September 2008 when the government offered a financial lifeline in exchange for an 80 percent stake in the company.
The company was in trouble after backing trillions of dollars in risky financial products amid a US home mortgage meltdown that triggered a global financial crisis.
The latest quarterly figures showed revenues fell 11.8 percent to 26 billion dollars as AIG sold off some or wound down of its operations.
AIG said it "continues to make progress on its disposition plan," having entered into agreements to sell or completed the sale of operations and assets to generate a total of 5.6 billion dollars.
A government report in September showed AIG still owed nearly 121 billion dollars in taxpayer aid.
The Government Accountability Office, an investigative arm of Congress, said the ultimate success of AIG?s restructuring and repayment efforts remains "uncertain."
Sunday, November 1, 2009
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."
Thursday, October 29, 2009
Saturday, August 22, 2009
The retail investors seem hot and bothered over AIG shares today. They’re up more than 33% just after noon. AIG has been on a tear since Aug. 5, when its shares jumped 63%. Volume surged by 1600%, to 134.9 million from the prior day’s 7.9 million. (No typo.) We still don’t know exactly what stoked flood of interest, although the conventional wisdom was that a short-squeeze and retail-led pile on ahead of AIG’s earnings got it going. Since AIG’s Aug. 4 closing low, the government-controlled insurer is up about 150% just before noon today.
There was a little news on the company that might explain some of the renewed attention to the shares. For instance, AIG named a couple executives for its U.S.-based life insurance and retirement services businesses. But that was part of an ongoing leadership reshuffle, and it hardly seems important enough to drive the shares up to where they are.
The only other thing we can find is a Bloomberg interview with AIG’s recently named CEO Robert Benmosche. The money quote: “We believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.” Not exactly a hugely reassuring comment for shareholders.
Just one note of contrarian context on the AIG share surge. A 150% move in a couple weeks seems impressive. But don’t forget that the company’s stock underwent a 1-for-20 reverse split in early July. Applying that algebra to AIG’s shares at their recent peak in September 2008 would have made one share worth $455.20. From that perspective, AIG long-term stock chart is still decidedly ski jump-shaped, with shares having lost roughly 93% of their value.
Thursday, August 13, 2009
Fearing the whole financial system could collapse, the government loaned A.I.G. $85 billion, which it used to pay off more than a dozen big banks that were on the other side of those derivatives trades.Jail for AIG executives would be better, and the govt taking over AIG's assets completely-- but, this is better than the status quo.
The banks may have needed the money, but they certainly didn’t deserve it. They knew or should have known the risks they were taking when they did business with the highflying A.I.G. But they were paid up anyway because it was believed that widespread failures would be costlier to the economy than the cost of the bailout.
Goldman Sachs got $12.9 billion. Deutsche Bank got $11.8 billion. Bank of America got $5.2 billion, Morgan Stanley $1.2 billion and JPMorgan Chase $400 million, and so on. Since then, the government’s commitment to A.I.G. has swelled to $173 billion.
Now, to try to repay some of the bailout money, A.I.G., which is nearly 80 percent owned by the government, is selling off some units and planning initial public offerings in others. And according to a recent analysis by The Wall Street Journal, several of the banks that were paid off in the first go-round, together with lawyers and accountants, could collect close to $1 billion in advisory and underwriting fees to move those efforts along. (snip)
It seems safe to say that a reasonable person would find that galling. When it comes to A.I.G., the big banks have clearly already got theirs. Now they get more? A.I.G. must be restructured for taxpayers to have a shot at recouping some of the bailout billions.
... large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.More on Goldman-Sachs and HFT here.
Scamming TARP and other outrageousness:
“During the week of the AIG bailout alone, Mr. Paulson and [Goldman Sachs CEO Lloyd] Blankfein spoke two dozen times … far more frequently than Mr. Paulson did with other Wall Street executives,” the Times reports.
The revelation is sure to fuel further claims that the $700-billion Troubled Assets Relief Program, or TARP, passed by Congress last fall with the support of both major presidential candidates, Barack Obama and John McCain, was “gamed” by Paulson in order to help out his colleagues at Goldman — and preserve his own reputation, which he made as the bank’s CEO.
Paulson spoke with Goldman’s CEO in an official capacity a total of 26 times before the treasury secretary was granted an “ethics waiver” that allowed him to be in far closer contact with his former employer than would have otherwise been allowed, Reuters notes.
In the five days after Paulson received his “waiver,” on Sept. 16, 2008, he spoke with Goldman’s Blankfein another 24 times.
But Paulson may have done more than help his former employer get bailed out of bad debts — he may have helped orchestrate the demise of his former employer’s competitors.
“Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted,” the Times writes.
Sunday, August 9, 2009
The former top executive of embattled insurance giant AIG, Maurice “Hank” Greenberg, agreed to pay 15 million dollars to settle accounting fraud charges, US authorities said Thursday.
The Securities and Exchange Commission said Greenberg, chairman and chief executive at AIG before its spectacular meltdown, will pay disgorgement and penalties to settle a probe into “numerous improper accounting transactions that inflated AIG’s reported financial results between 2000 and 2005.”
The company’s former chief financial officer Howard Smith meanwhile will pay 1.5 million dollars to settle related charges, the SEC said in a statement.
The SEC said it filed the charges and settlement in US District Court for the Southern District of New York.
Greenberg, 84, had led the American International Group for four decades before he was ousted amid an accounting probe in March 2005, ahead of the near collapse of the insurance behemoth during a global financial crisis stemming from a US home mortgage meltdown.
It was taken over by the US government last year in a massive 170-billion-dollar bailout.
The SEC alleged that Greenberg and Smith were responsible for “material misstatements that enabled AIG to create the false impression that the company consistently met or exceeded key earnings and growth targets.”
The SEC had charged AIG in 2006 with securities fraud and improper accounting, and the company had settled the charges by paying disgorgement of 700 million dollars and a penalty of 100 million dollars, among other remedies.
“Without admitting or denying the SEC’s allegations,” Greenberg and Smith had consented to a judgment directing them to pay the penalties, the SEC said.
Tuesday, July 28, 2009
The Federal Reserve — the quasi-autonomous body that controls the US’s money supply — is a “Ponzi scheme” that created “bubble after bubble” in the US economy and needs to be held accountable for its actions, says Eliot Spitzer, the former governor and attorney-general of New York.The war being waged on the TARP watchdog's independence:
Neil Barofsky, the chief watchdog over the $700 billion TARP bank bailout program, is one of those rare creatures in Washington: he takes very seriously his responsibilities of independent oversight and accountability. (snip) But ever since he was appointed to head the oversight office created by Congress when it enacted TARP -- an office designed to ensure transparency and accountability at the Treasury Department and in the banking industry -- he has repeatedly clashed with Obama's Treasury officials over their lack of transparency in how the trillions of dollars in TARP-related funds are being sent to and used by the banking industry. (snip) Last week, he issued a report documenting that the actual amount of taxpayer money theoretically put at risk in the bank bailout -- once Federal Reserve, FDIC and other programs are counted -- is $23.7 trillion, not the widely cited figure of $700 billion, a report that prompted attacks from the White House and Treasury on his credibility. Separately, Barofsky has continuously disputed White House claims that it's impossible to account for what has been done by banks with the TARP funds. (snip)
Most significant of all, and obviously due to Barofsky's truly independent oversight efforts, the Obama administration is now attempting to induce the Justice Department to issue a ruling that Barofsky's office is not independent at all -- but rather, is subject to, and under the supervision of, the authority of Treasury Secretary Tim Geithner. By design, such a ruling would completely gut Barofsky's ability to compel transparency and exercise real oversight over how Treasury is administering TARP, since it would make him subordinate to one of the very officials whose actions Congress wanted him to oversee: the Treasury Secretary's.
Thursday, July 9, 2009
What’s interesting is their point of view on the event closest to the center of the financial crisis. For while they disagreed on this and that, they all were fairly certain that if it hadn’t been for A.I.G. F.P. the subprime-mortgage machine might never have been built, and the financial crisis might never have happened.snip
In a financial system that was rapidly generating complicated risks, A.I.G. F.P. became a huge swallower of those risks. In the early days it must have seemed as if it was being paid to insure against events extremely unlikely to occur—how likely was it that all sorts of companies and banks all over the globe would go bust at the same time? Its success bred imitators: Zurich Re F.P., Swiss Re F.P., Credit Suisse F.P., Gen Re F.P. All of these places were central to what happened in the last two decades; without them the new risks being created would have had no place to hide, but would have remained in full view of bank regulators. All of these places have been washed away by the general nausea now felt in the presence of complicated financial risks, but there was a moment when their existence seemed cartographically necessary to the financial world. And A.I.G. F.P. was the model for them all.snip
...the people who worked at A.I.G. F.P. got rich. Exactly how rich is hard to say, but there are plenty of hints. One is that a company lawyer—a mere lawyer!—took home a $25 million bonus at the end of one year. Another is that in 2005, when Howard Sosin and his wife divorced, she received more than $40 million of an estate valued at $168 million—and Sosin had left A.I.G. in 1993, receiving $182 million from the company! He had been replaced that year as C.E.O. by a gentler soul named Tom Savage, who had allowed Hank Greenberg to take some of the sugar out of F.P., but even then the small band of traders had, arguably, a sweeter deal than any money managers in the world. The typical hedge fund kept 20 percent of profits; the traders at A.I.G. F.P. kept 30 to 35 percent. The typical hedge fund or private-equity fund has to schlep around and raise money all the time, and post collateral with big Wall Street firms for all the trades they do. The traders at A.I.G. F.P. had essentially unlimited capital on tap from the parent company, along with the AAA rating, rent-free. For the people who worked there, A.I.G. F.P. was a financial miracle. They were required to leave 50 percent of their bonuses in the company, but they were happy to do so; many of them, viewing it as the best way to grow their own savings, invested far more than the minimum back in the company. When it collapsed, the employees lost more than $500 million of their own money.snip
How and why their miracle became a catastrophe, A.I.G. F.P.’s traders say, is a complicated story, but it begins simply: with a change in the way decisions were made, brought about by a change in its leadership. At the end of 2001 its second C.E.O., Tom Savage, retired, and his former deputy, Joe Cassano, was elevated. Savage is a trained mathematician who understood the models used by A.I.G. traders to price the risk they were running—and thus ensure that they were fairly paid for it. He enjoyed debates about both the models and the merits of A.I.G. F.P.’s various trades. Cassano knew a lot less math and had much less interest in debate.
Across A.I.G. F.P. the view of the boss was remarkably consistent: a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. “A.I.G. F.P. became a dictatorship,” says one London trader. “Joe would bully people around. He’d humiliate them and then try to make it up to them by giving them huge amounts of money.”snip
Even by the standards of Wall Street villains, whose character flaws wind up being exaggerated to fit the crime, Cassano was a cartoon despot.snip
Oddly, he was as likely to direct his anger at profitable traders as at unprofitable ones—and what caused him to become angry was the faintest whiff of insurrection.
Who put a man like Joe Cassano in charge of such an enterprise as A.I.G. F.P.? The simple answer is Hank Greenberg, the C.E.O. of A.I.G.; the more complicated one is A.I.G. F.P.’s board, consisting of many smart people, including Harvard economist Martin Feldstein. “Tom Savage proposed Joe to replace him,” says Greenberg, “and we had no reason to think he wasn’t able to do the job.”snip
A.I.G. F.P.’s employees for their part suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. “So long as Greenberg was there, it worked,” says one trader, “because he watched everything Joe did.
...the guy who had the most invested in A.I.G. F.P. was Joe Cassano. Cassano had been paid $38 million in 2007, but left $36.75 million of that inside the firm. His financial interest in A.I.G. F.P. struck those who worked for him as secondary to his psychological investment: the firm was, by all accounts, Cassano’s sole source of self-worth, its success his lone status symbol. He wore crappy clothes, drove a crappy car, and spent all of his time at the office. He had made huge piles of money ($280 million!), but so far as anyone could tell he didn’t spend any of it. “Joe wasn’t a trader and now he wasn’t a risktaker, in his personal life,” says one of the traders. “With the money he didn’t have in the company he bought Treasury bonds.” He had no children, no obvious social ambition; his status concerns seemed limited to his place in the global financial order. He entertained a notion of himself as the street-smart guy who had triumphed over his social betters—which of course implied that he wasn’t quite sure that he had. “Joe had Goldman envy,” one trader tells me—which was strange, as Cassano’s brother and sister both worked for Goldman Sachs. “His whole life was F.P.,” another trader says. “Without F.P. he had nothing.” That was another reason, in addition to fear, that the highly educated, highly intelligent people who worked for Joe Cassano were slow to question whatever he was doing: he was the last person, they assumed, who would blow the place up.snip
...Wall Street firms packaging the loans into bonds had found someone to insure against what turned out to be the rather high risk that they’d go bad: Joe Cassano.snip
A.I.G. F.P. was already insuring these big, diversified, AAA-rated piles of consumer loans; to get it to insure subprime mortgages was only a matter of pouring more and more of the things into the amorphous, unexamined piles. They went from being 2 percent subprime mortgages to being 95 percent subprime mortgages. And yet no one at A.I.G. said anything about it—not C.E.O. Martin Sullivan, not Joe Cassano, not Al Frost, the guy in A.I.G. F.P.’s Connecticut office in charge of selling his firm’s credit-default-swap services to the big Wall Street firms. The deals, by all accounts, were simply rubber-stamped by Cassano and then again by A.I.G. brass—and, on the theory that this was just more of the same, no one paid them special attention. It’s hard to know what Joe Cassano thought and when he thought it, but the traders inside A.I.G. F.P. are certain that neither Cassano nor the four or five people overseen directly by him, who worked in the unit that made the trades, realized how completely these piles of consumer loans had become, almost exclusively, composed of subprime mortgages.
The A.I.G. F.P. executives present were shocked by how little actual thought or analysis seemed to underpin the subprime-mortgage machine: it was simply a bet that U.S. home prices would never fall.snip
What no one realized was that it was too late. A.I.G. F.P.’s willingness to assume the vast majority of the risk of all the subprime-mortgage bonds created in 2004 and 2005 had created a machine that depended for its fuel on subprime-mortgage loans. “I’m convinced that our input into the system led to a substantial portion of the increase in housing prices in the U.S. We facilitated a trillion dollars in mortgages,” says one trader. “Just us.” Every firm on Wall Street was making fantastic sums of money from this machine, but for the machine to keep running the Wall Street firms needed someone to take the risk.snip
What no one realized is that Joe Cassano, in exchange for the privilege of selling credit-default swaps on subprime-mortgage bonds to Goldman Sachs and Merrill Lynch and all the rest, had agreed to change the traditional terms of trade between A.I.G. and Wall Street. In the beginning, A.I.G. F.P. had required its counter-parties simply to accept its AAA credit: it refused to post collateral. But in the case of the subprime-mortgage credit-default swaps, Cassano had agreed to several triggers, including A.I.G.’s losing its AAA credit rating, that would require the firm to post collateral. If the value of the underlying bonds fell, it would fork over cash, so that, for instance, Goldman Sachs would not need to be exposed for more than a day to A.I.G. Worse still, Goldman Sachs assigned the price to the underlying bonds—and thus could effectively demand as much collateral as it wanted. In the summer of 2007, the value of everything fell, but subprime fell fastest of all. The subsequent race by big Wall Street banks to obtain billions in collateral from A.I.G. was an upmarket version of a run on the bank. Goldman Sachs was the first to the door, with shockingly low prices for subprime-mortgage bonds—prices that Cassano wanted to dispute in court, but was prevented by A.I.G. from doing so when he was fired. A.I.G. couldn’t afford to pay Goldman off in March 2008, but that was O.K. The U.S. Treasury, led by the former head of Goldman Sachs, Hank Paulson, agreed to make good on A.I.G.’s gambling debts. One hundred cents on the dollar.snip
Joe Cassano was the perfect man for these times—as responsible for a series of disastrous trades as a person in a big company can be. He discouraged the dissent of subordinates who understood them better than he did. He acted with the approval of A.I.G., but he also must have known that A.I.G. wasn’t able to evaluate his trades. Once he was persuaded to stop insuring subprime-mortgage bonds, the logical course of action was to reverse the deals he had already done. In 2006 he might have found a way to do this, if he had been willing to accept the costs involved, but he wasn’t. Had he been, the machine he helped to create would have kept running—by then it had a life of its own—and the losses would have simply wound up more concentrated inside the big banks. But he’d have saved his company....For what this is worth-- the insiders claim no fraud, just mismanagement. Surprise. Because if there was fraud, then they would be complicit too.
And yet the A.I.G. F.P. traders left behind, much as they despise him personally, refuse to believe Cassano was engaged in any kind of fraud. The problem is that they knew him. And they believe that his crime was not mere legal fraudulence but the deeper kind: a need for subservience in others and an unwillingness to acknowledge his own weaknesses.
Wednesday, July 8, 2009
They are the biggest of the big — the Citigroups, the Goldman Sachses, the AIGs and other financial behemoths. The Obama administration doesn't want so many around anymore.
Financial regulations proposed by the president would result in leaner and simpler institutions that don't carry the weight of the system on their marble columns.
Around Washington and Wall Street they have come to be known as TBTF — too big to fail. It's not just size, though. These companies are so far-flung, so intertwined and so precariously leveraged that a single one's collapse can create systemwide tremors that imperil the finances of millions of Americans.
Sunday, July 5, 2009
Bailout: $69,835,000,000 Returned: $0
10.8% of all bailout funds committed. 94.1% of the Insurance Company industry bailout.
On four separate occasions, the government has offered aid to AIG to keep it from collapsing, rising from an initial $85 billion credit line from the Federal Reserve to what is now a combined $180 billion commitment between the Treasury ($69.84 billion) and Fed ($110 billion). The green number above only reflects Treasury's commitment, since those are taxpayer dollars.
As of June 17, the Treasury and the Fed have lent or invested a total of $122.5 billion in AIG. The Fed has extended $82.5 billion in aid to AIG, according to its June 17, 2009, balance sheet. And though the Treasury has committed up to $69.84 billion, only $40 billion of that has actually been invested.
Sunday, June 28, 2009
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.
The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, halfeaten pension funds, mass layoffs, future taxes to payoff hailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense. Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch ofreally smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
Saturday, June 27, 2009
Sunday, June 21, 2009
A.I.G. is now named A.I.U., and has employed no fewer than four public relations firms, including one whose bipartisan roster of shills ranges from the former Hillary Clinton campaign strategist Mark Penn to the former Bush White House press secretary Dana Perino.
Taxpayers are paying for that P.R., having poured $170 billion-plus into A.I.G. But we still don’t have a transparent, detailed accounting of what was going down last fall when A.I.G. and its trading partners, including Goldman, snared that gargantuan cashtransfusion.
Update on AIU:
NEW YORK, June 24 (Reuters) - AIU Holdings, the property-casualty division of insurer AIG and one of the world's largest commercial insurers, has tapped Robert Schimek to be its first global chief financial officer, a role that includes preparing the company for a stake sale.
AIU Holdings, seeking to distance itself from troubled parent American International Group Inc, is taking steps toward greater independence, including rebranding itself and a sale of up to a 20 percent stake to outside investors through an initial public offering or private deal.
Schimek, in an interview with Reuters this week, said he plans to keep the company unified: "We will not break up AIU Holdings ... We are bringing it together under one roof as part of a worldwide U.S.-based property-casualty insurance company."
Schimek, 44, joined AIG's North American commercial insurance business in 2005 from accounting firm Deloitte & Touche LLP, where he helped prepare several large insurers for IPOs, including No. 1 U.S. life insurer MetLife Inc.
"Rob Schimek's extensive experience ... uniquely qualify him to successfully lead the financial operations of AIU Holdings and advance the organization's separation strategies," Kristian Moor, who was named president of AIU Holdings in March, said in a statement.
AIU Holdings comprises AIG's commercial property-casualty business in North America and its foreign general insurance, as well as a private client group.
AIU Holdings expects to retain its waterfront headquarters in lower Manhattan, and will most likely list its shares in New York.
While AIG posted losses of nearly $100 billion in 2008, AIU Holdings' businesses in North America turned an after-tax net profit of more than $2 billion. The unit received no capital injection from its parent company in 2008 or this year.
"The AIG situation, the U.S. economy, the U.S. credit markets, a real tough U.S. natural catastrophe season -- in the face of all those events, the North American operations still had statutory net income," said Schimek.
As parent company, AIG will receive the proceeds of any stake sale by AIU Holdings -- potentially in the neighborhood of $8 billion if a 20 percent stake is sold. The figure is based on AIU Holdings' $38 billion valuation under U.S. accounting rules at the end of 2008.
AIG could use the proceeds to help repay bailout funds to the U.S. government. The company nearly collapsed last year under rising collateral demands from customers that bought debt protection from AIG's financial products unit. Through a series of bailouts, the government committed up to $180 billion to AIG's rescue, including about $85 billion in loans.
Sunday, June 7, 2009
While this may seem like ancient history now, doesn't it seem likely that the current financial crisis was a CIA scam-- particularly given ties between AIG and the CIA?
More details on the CIA and the S&L crisis here and here.
Gunther Russbacher, the "former" CIA agent who is the basis for much of this information, has a very bizarre, interesting history (with various contradictory information). See here, here, here. Strikingly, there is nothing on Russbacher or Stich in Wikipedia, despite their importance in the conspiracy world.
Friday, May 29, 2009
As evidence of dishonesty, Whalen points to AIG’s occasional habit of using secret agreements to falsify financial statements — either its own or those of other companies. In 2005, a former senior executive at the insurer General Re pleaded guilty to a conspiracy to misstate AIG’s finances, after General Re paid $500m in premiums for AIG to reinsure a nonexistent $500m risk. The transaction was a sham; the only economic benefit to either party was the $5.2m fee paid by AIG for Gen Re’s help.
When the $500m in loss reserves were added to AIG’s balance sheet in 2000 and 2001, Greenberg was able to claim an increase in reserves, when in fact they had declined. “They’ll find ways to cook the books, won’t they?” John Houldsworth, the former executive, said in a recorded phone conversation with Elizabeth Monrad, his chief financial officer. She observed that “these deals are a little bit like morphine; it’s very hard to come off of them”.
(snip)“The key point that neither the public, the Fed nor the Treasury seems to understand,” says Whalen, “is that the CDS contracts written by AIG were shams, with no correlation between fees paid and the risk assumed. These were not valid contracts but acts to manipulate the capital positions and earnings of financial companies around the world.”
The whole article, by Tim Rayment, is great, and should be read in its entirety.
Thursday, May 28, 2009
America has an Office of Risk Assessment, set up in 2004 to co-ordinate risk management for the main regulator, the Securities and Exchange Commission (SEC). Jonathan Sokobin, its director, says it is charged with “understanding how financial markets are changing, to identify potential and existing risks at regulated and unregulated entities”. According to its website, it also helps to “anticipate, identify and manage risks, focusing on early identification of new or resurgent forms of fraud and illegal or questionable activities… across the corporate and financial sector”. By early 2008, this office was reduced to a staff of one. “When that gentleman would go home at night,” says Lynn Turner, the SEC’s former chief accountant, “he could turn the lights out. We had gotten down to just one person at the SEC responsible for identifying the risk at all the institutions.” The $596-trillion market in unregulated derivatives, including $58 trillion in credit-default swaps, was being watched by one person. That’s when he wasn’t looking at the rest of the corporate world, of course.
Can one man in London really be to blame for the collapse of capitalism?
The official version is that Joseph Cassano, who occupies the stucco-fronted house near Harrods, brought down a safe and stable company — and by extension, the world — with incompetent gambles. “You’ve got a company, AIG, which used to be just a regular old insurance company,” Obama explained during a recent TV appearance. “Then they decided — some smart person decided — let’s put a hedge fund on top of the insurance comp-any, and let’s sell these derivative products to banks all around the world.” Ben Bernanke, the chairman of the Federal Reserve, adds: “This was a hedge fund, basically, that was attached to a large and stable insurance company.”
Cassano, who ran AIG’s financial-products division in London, “almost single-handedly is responsible for bringing AIG down and by reference the economy of this country”, says Jackie Speier, a US representative. “They basically took people’s hard-earned money, gambled it and lost everything. And he must be held accountable for the dereliction of his duty, and for the havoc he’s wrought on America. I don’t think the American people will be content, nor will I, until we hear the click of the handcuffs on his wrists.”
This account is as satisfying as it is easy to understand. It treats the blowing up of the world financial system like a global version of Barings, the bank that collapsed in 1995, with Cassano in the role of Nick Leeson. Operating from the fifth floor of a polished white stone building in Mayfair, Cassano’s unit sold billions of pounds of derivatives called credit-default swaps (CDS), allowing banks to buy risky debt without attracting the attention of regulators. AIG took the fees, but did not have the money to pay up if the loans went bad. By the time the music stopped, European banks had protected more than $300 billion of debt with this bogus “insurance”. And that is just one corner of a web of risk extending to over 1,500 big corporations, banks and hedge funds. In a 21-page paper known as the Mutually Assured Destruction memo, AIG claims that if the bailouts stop and the company is allowed to go bust, it will take the world with it. Cassano must have played with handcuffs as a child: he is the son of a Brooklyn cop. Now he waits for the fallout.
But the official version overlooks many things, including episodes of fraud at AIG that go back at least 15 years. It fails to explain why Public Enemy No 1 was allowed to leave the company on generous terms, with a retainer of $1m a month and up to $34m (£23m) in bonuses. And it does nothing to tell us why other big companies, whose profits looked as smooth and certain as AIG’s in the good times, are also fighting for survival.
Saturday, May 23, 2009
Liddy (made) an appearance to brief Congressmen on AIG's progress. He told them the one thing that accusers cannot stand to hear. Liddy was innocent of any of the charges they made against him, and that was a plain and simple fact. As he said at the time, "Six months ago I came out of retirement to help my country. At the government's request I've had the duty and extraordinary challenge of serving as chairman and chief executive officer of American International Group, or A.I.G."
The way that Liddy has been treated is bound to undermine whatever spirit of voluntarism exists among executives in the private sector who will be called on in the future to help the federal government when it has critical and particular needs.
Liddy should have concluded his March testimony and cross examination in front of the House Financial Services subcommittee by pulling a blank sheet of paper from his brief case, writing his resignation on it, and handing it to chairman Barney Frank. Liddy is too class an act to have done that. He at least waited until AIG has reached a more stable state and left without a word of anger.
Reality from FDL:
Time decides to boost its margins by entering the fiction arena. Douglas McIntyre writes:
Liddy came to the company at a time when it was close to being scuttled by losses from credit derivatives on its balance sheet. He came to work for $1.
Liddy's contract gave him stock in AIG that was never disclosed, and was eligible for a bonus in 2010.
He came to work for $1. He had only been in the job for a few months when AIG posted a loss of more than $61 billion for the last quarter of 2008.
Liddy had only been on the job a few days when he wrote a check to Goldman Sachs for $13 billion as an AIG counterparty, paying full value on credit default swaps for securities worth half that amount, when no default had yet occurred. He did not disclose to Congress that he personally had $3.3 million worth of Goldman stock. Under Liddy's tenure, Goldman stock went from $47 to $137 a share.
He was not involved with a single judgment that forced the company to its knees. He was simply a volunteer who took on an impossible job and was, in return, beaten like a red headed mule by Congress.
Reality detour: I was at the March hearing in question, and wrote at the time, "Edward Liddy comes to a subcommittee hearing to answer questions about AIG bonuses, is sworn in and testifying under oath, he answers questions by every single member of the subcommittee for hours, nobody on the subcommittee asks him how much money we're talking about, and he's not prepared to answer the question when someone finally does." With minor exception, it was a total hand job.
Liddy had committed one unpardonable sin, or at least that was the story that several members of Congress wanted to believe. He had agreed to previously planned bonuses for AIG employees who worked in the part of the company that had created many of the insurance firm's losses.
After refusing to answer Elijah Cummings' questions for months, Cummings asked that he be sworn in, and while under oath, Liddy admitted he'd personally signed 4500-4700 bonus contracts since taking over that had absolutely nothing to do with the Financial Products division.
Liddy was clear in making the point that AIG had a legal obligation to make the payments.
Liddy argued that the government had no right to ask for contracts to be rewritten in exchange for government assistance. Tell it to Chrysler. (Note: Liddy had no problem breaking contracts when he was at Allstate.)
He would have been better off to hold his tongue.
He would have been better off not taking his CEO testimony cues from Jeff Skilling.
The minute he gave an explanation for his actions, no matter how rational it was, his interrogators seized on it as another act of either bad faith or stupidity on his part.
Ed Liddy paid lobbyist Tommy Boggs and Burson Marsteller to shovel bullshit to easily duped people like Doug McIntyre, who ate it up and begged for more.
The members of House Financial Service subcommittee refused to let up on Liddy during the March session when he an appearance to brief Congressmen on AIG's progress. He told them the one thing that accusers cannot stand to hear. Liddy was innocent of any of the charges they made against him, and that was a plain and simple fact.
Here's Elijah Cummings questioning Liddy at that hearing. You decide if that's an adequate description of what happened:
And then there's the gratuitous sex scene:
Liddy should have concluded his March testimony and cross examination in front of the House Financial Services subcommittee by pulling a blank sheet of paper from his brief case, writing his resignation on it, and handing it to chairman Barney Frank.
That still wouldn't have spared him the part where AIG had to issue a press release saying Liddy didn't know what he was talking about during his testimony.
Liddy is too class an act to have done that. He at least waited until AIG has reached a more stable state and left without a word of anger.
AIG will make another round of bonus payments in July and then again in September, which were initiated and signed by Ed Liddy, which the WSJ estimates at $1 billion while Americans continue to shed jobs.
Why would Ed Liddy want to take another rasher of PR shit when he can hang out with guys like Doug McIntyre and Jake DeSantis and cry about the sad predicament of poor rich white bankers? (Update: while, as John Anderson reminds me, Elizabeth Warren gets ambushed by the financial press.)
Thursday, May 7, 2009
The White House, auto executives and union representatives were all able to come to an agreement last week to keep Chrysler out of bankruptcy. But the car company's creditors -- Wall Street banks and hedge funds -- refused repeated compromises and drove the company under.
The refusal doomed a major American auto company to bankruptcy, but it may have been a smart business move for the lenders.
Many of the Wall Street firms holding Chrysler bonds may also own credit default swaps that they bought to hedge their bets. These swaps, which are essentially like an insurance policy on the bonds should Chrysler default, were likely mostly issued by AIG.
AIG, thanks to the government bailout, has paid off swaps in the past at 100 cents on the dollar. Under the deal they would have had to accept with Chrysler, the bondholders would have received as little as 30 cents on the dollar, for example.
Why take 30 or 35 cents on the dollar from Chrysler when you can get the whole buck from the American taxpayer?
"The basic story is very simple," says economist Dean Baker of the liberal-leaning Center for Economic and Policy Research. "If they hold credit default swaps on the bonds, they're totally happy with them defaulting."
In what would rank as one of the great scams of this financial crisis, government bailouts may be colliding. Wall Street may be raking in taxpayer dollars through AIG and returning the favor by driving the auto industry into bankruptcy.
The 2008 AIG bonus pool just keeps getting larger and larger.
In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.
And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date.
AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.
That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.
The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I think it might have been in the range of $9 million.”
“I was shocked to see that the number has nearly quadrupled this time,” said Cummings. “I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start.”
Tuesday, May 5, 2009
"We are pleased to announce our decision to rebrand to a familiar name -- VALIC," begins a brochure titled, "Back to our roots" that was recently distributed to holders of policies with the Variable Life Insurance Company. Um, and guess what slightly more familiar name VALIC has decided to cast off? Yes, that would be everyone's favorite federally-funded money vortex the American International Group.
Possibly, and this is entirely idle speculation on our parts but, the fancy public relations firms the zombie insurer retained are known for running focus groups. Perhaps the feedback concluded that somehow the AIG name was a turnoff to people looking for a place to store their remaining life savings?
Monday, May 4, 2009
Even if the U.S. government were to entirely take over American International Group, company executives would still be able to collect bonuses at taxpayer expense, according to a letter from AIG CEO Ed Liddy to employees disclosed in the company's recent SEC report.
"As this special award is being made to a very select group of executives, I ask that you treat it as confidential," wrote Liddy. The letter is dated less than a week after the government first bailed the company out.
The letter assured the select group that "in the event the AIG entity that is your employer (the Company') experiences a Change in Control (e.g., consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company), AIG guarantees the payment of the 2008 Special Cash Retention award on the dates and under the conditions specified above."
The United States is roughly a 79 percent owner of AIG, having pumped in some 170 billion in taxpayer dollars.
Elsewhere, the SEC filing reports that "AIG is working with the Department of the Treasury and NY Fed to establish a framework for further extending the period for earning retention awards and making them performance-based." (Now there's a crazy idea.)
Some of those in line to get bonuses have family in the right places, according to the filing. The daughter of top executive Edmund Tse, Ada K.H. Tse, is president and CEO of AIG Global Investment Corp. (Asia) Ltd. In 2008, she pocketed $400,000 in "retention awards" and $250,000 in a year-end bonus. She will be "eligible to receive an additional amount that has not yet been approved. Ms. Tse also will be eligible for retention payments in 2009 in the amount of approximately $600,000," reads the report.
Daniel Neuger is the son of another top executive, Win Neuger, and serves as "managing director of AIG Global Investment Corp. and AIG Global Asset Management Holdings Corp." He took in $75,000 in "retention awards" in 2008 and is on track for roughly $110,000 in 2009.
Liddy promised there was more to come. "I fully recognize the devastating loss of personal wealth you've suffered, and pledge to you my personal commitment to provide an opportunity for substantial wealth creation through a combination of cash and equity awards in the coming months and years," he wrote in the letter to employees outlining the bonus policy.
Thursday, April 30, 2009
Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is.Special mention of Evan Bayh, for exceptional corruption with regard to banking, though of course there are many others...
The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials.
Thursday, April 16, 2009
Monday, April 13, 2009
They weren't just secret agents. They were secret insurance agents. These undercover underwriters gave their World War II spymasters access to a global industry that both bankrolled and, ultimately, helped bring down Adolf Hitler's Third Reich.
Is there any doubt they are still doing similar work?
Saturday, April 11, 2009
Monday, April 6, 2009
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests— financiers, in the case of the U.S.— played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
But these various policies— lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership— had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. (snip)
The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
The Wall Street–Washington Corridor
Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.
In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption— envelopes stuffed with $100 bills— is probably a sideshow today, Jack Abramoff notwithstanding.
Instead, the American financial industry gained political power by amassing a kind of cultural capital— a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.
One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.
Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. (snip)
A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”
Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.
In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country— and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom— trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.
From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.
The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.
That's $135,000 paid by Goldman Sachs to Summers -- for a one-day visit. And the payment was made at a time -- in April, 2008 -- when everyone assumed that the next President would either be Barack Obama or Hillary Clinton and that Larry Summers would therefore become exactly what he now is: the most influential financial official in the U.S. Government (and the $45,000 Merrill Lynch payment came 8 days after Obama's election). Goldman would not be able to make a one-day $135,000 payment to Summers now that he is Obama's top economics adviser, but doing so a few months beforehand was obviously something about which neither parties felt any compunction. It's basically an advanced bribe. And it's paying off in spades. And none of it seemed to bother Obama in the slightest when he first strongly considered naming Summers as Treasury Secretary and then named him his top economics adviser instead (thereby avoiding the need for Senate confirmation), knowing that Summers would exert great influence in determining who benefited from the government's response to the financial crisis.Motherfuckers.
Last night, former Reagan-era S&L regulator and current University of Missouri Professor Bill Black was on Bill Moyers' Journal and detailed the magnitude of what he called the on-going massive fraud, the role Tim Geithner played in it before being promoted to Treasury Secretary (where he continues to abet it), and -- most amazingly of all -- the crusade led by Alan Greenspan, former Goldman CEO Robert Rubin (Geithner's mentor) and Larry Summers in the late 1990s to block the efforts of top regulators (especially Brooksley Born, head of the Commodities Futures Trading Commission) to regulate the exact financial derivatives market that became the principal cause of the global financial crisis. To get a sense for how deep and massive is the on-going fraud and the key role played in it by key Obama officials, I highly recommend watching that Black interview (it can be seen here and the transcript is here).
This article from Stanford Magazine -- an absolutely amazing read -- details how Summers, Rubin and Greenspan led the way in blocking any regulatory efforts of the derivatives market whatsoever on the ground that the financial industry and its lobbyists were objecting...
Sunday, April 5, 2009
In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.
But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.
The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.
To hear the folks at AIG describe it, it's in our interest to pay out all this money to their CDS counterparties and keep the bonus money flowing because -- in addition to not destroying the global banking system -- we've got to maintain the value of all the good parts of AIG that we're going to sell off and get our money back.
But there are disturbing reports emerging that outside of AIGFP, where everyone is getting paid out at full dollar value, at the tried and true subsidiaries they're stiffing people they owe money to and letting whole operations basically drive into the ditch.
Here's one example we've unearthed with AIG's real estate unit basically walking away from one of their ill-advised mega-deals for some sixteen thousand residential apartments. It makes this part of AIG look like the corporate equivalent of one of those trashed and abandoned subdivision homes now gone to seed because the owners have walked away from it when they couldn't pay the mortgage.
Whether this is representative of the rest of the company is not at all clear. But it suggests at a minimum that we -- as owners of the company -- need to be asking a lot more questions about just how this behemoth is being run.
Friday, April 3, 2009
In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.
As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.
The significance of this for the US bailout of AIG is profound. If our surmise is correct, the position of Feb Chairman Ben Bernanke and Treasury Secretary Tim Geithner that the AIG credit default contracts are “valid legal contracts” is ridiculous and reveals a level of ignorance by the Fed and Treasury about the true goings on inside AIG and the reinsurance industry that is truly staggering.
Saturday, March 28, 2009
Rep. Spencer Bachus (R-AL) just raised a new objection to the AIG counterparty payments--specifically that while AIG used government money to pay off their CDS obligations dollar-for-dollar to major (sometimes foreign) financial institutions, it repaid smaller U.S. institutions that made secured loans to AIG subsidiaries at a rate of only about 20 to 30 cents on the dollar.
Video forthcoming, but Geithner had no immediate answer to the query, which, to amateur ears anyhow, sounds like an interesting one.
By Zachary Roth - March 27, 2009, 1:38PM
Yesterday we told you about Bob Lewis, AIG's chief risk officer, who still has his job despite a rather obvious failure to ensure that the firm wasn't taking on an unmanageable level of risk.
But it looks like it's not just Lewis. The Wall Street Journal reports that several longtime members of AIG's Credit Risk Committee are also still in place. That committee, says the paper, was in charge of overseeing those disastrous credit default swaps.
At least five of the committee's ten members have served for several years. In addition to Lewis, the chief risk officer, they are:- Kevin McGinn, chief credit officer and chairman of the committee
- Win Neuger, chief executive of AIG Investments;
- William Dooley, head of AIG's financial-services division, which includes the financial-products unit that sold the credit-default swaps, and...
- Barbara-Ann Livanou, director of financial institutions in the credit-risk-management department.
Lewis and McGinn appear to be the most directly implicated here. It was Lewis' department, of course, that handled the company's "major risks," according to SEC filings looked at by the Journal. (A former AIG exec yesterday confirmed to TPMmuckraker that Lewis' role would have been to avoid letting AIG get into the exact position that brought it down.)
Which is why it's interesting that the man who has had that post since at least 2000, Bob Lewis, still appears to have the job today.
An official list of AIG execs obtained by TPMmuckraker and created after CEO Ed Liddy took over last September shows Lewis as the firm's Chief Risk Officer and an executive vice president.
And a letter that looks to be from an employee of AIGFP's Paris office, obtained by the blog Clusterstock and posted earlier today, asserts:By the way, the head of Risk Control for the whole of AIG, Bob Lewis, is still working in that role today.
Lewis may be one of the prime culprits of AIG's collapse. According to Robert Arvanitis, a former top AIG exec and a risk expert, what caused the firm's downfall was that, in addition to its credit default swaps, its investment division was heavily exposed to the sub-prime market, just like so many other banks were. When AIG's credit rating was downgraded, the Financial Products unit was forced to post more collateral to its counter-parties. But the investment division was unable to provide AIGFP with collateral in the amounts needed, because of its own sub-prime losses. It would have been Lewis' job, said Arvanitis, to have a global view of the company's risk exposure, and make sure it didn't get into that position.
Lewis himself would seem to agree. As Clusterstock notes, back in 2000 he told one trade magazine: "The CCO's ultimate responsibility is to see that credit risks are managed appropriately throughout the worldwide organization."
"Based on the results, I'd say he missed it by a wide mark," Arvanitis told TPMmuckraker, in what seems like an understatement.
One of the bizarre aspects of Secretary Geithner's claims not to have known about AIG bonuses until recently is that these bonuses have been the subject of intense controversy for months. Numerous members of Congress, such as Rep. Elijah Cummings, have been pressuring AIG since at least November, in the form of numerous letters, for details on AIG's retention bonus plan (more on that in a minute).
But this December 11, 2008 article -- from CBS News -- contains what seems to be a rather significant statement from AIG about its bonus plan:
Insurance giant AIG was given $152 billion in bailout money by the federal government since nearly collapsing in September. Now the company is planning to take millions of that money and hand it over to employees in a program that sounds a lot like bonuses. . . .
But so far, no one's stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they'll receive between $92,500 and $4 million per individual if they stay with the company for one year. . . .
Nicholas Ashooh, AIG's senior vice president of communication, acknowledges that the perception of his company has taken a hit.
"Oh, it's terrible, it's terrible," he told CBS News.
Ashooh said the retention program does not include anyone in the firm's financial products business, the tiny arm of the company that torpedoed AIG with its high-risk, bad loans.
That AIG was scheduled to make millions of dollars in bonus payments has been public knowledge for many months -- since well before Geithner pressured Chris Dodd to insert an exception into executive compensation limits for already-existing employment contracts. But what is so notable here is AIG's express denial that "the retention program does not include anyone in the firm's financial products business," given what we now know is the truth:
[AIG's CEO Edward] Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses -- he did not call them that -- to executives.
He said the money was offered to executives in AIG's financial products section, where risky investments finally became the entire company's undoing.
Retention pay was thrust into the executive-compensation debate with the disclosure by AIG that it paid $165 million to employees of its financial products division.
The unit made disastrous bets on securities known as credit-default swaps that ultimately led to billions in losses and necessitated a government bailout costing $170 billion to keep a failure of the company from bringing down the global financial system.
Assuming the CBS News story reported the comments of AIG's spokesperson accurately, this seems to be a rather flagrant case of AIG outright lying about what its retention bonus plan entailed.
Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.
As any lawyer knows, there are few things more common – or easier -- than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.
Since the contracts are secret and we’re apparently just supposed to rely on the claims of AIG and Treasury Department lawyers, it’s impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it’s inconceivable that there aren’t substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.
The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so -- they haven't exactly proven themselves to be paragons of business ethics -- but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.
Oh the outrage-- that they are being unfairly persecuted. And I'm this guy was oh so innocent-- just a hard working trader screwed over by unscrupulous colleagues (riiight). But "dismantling the company"? Is that what he means? Though clearly they helped to dismantle the economy!
I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials.
Further-- a good rant from Matt Taibbi on this same letter--
Like a lot of people, I read Wednesday's New York Times editorial by former AIG Financial Products employee Jake DeSantis, whose resignation letter basically asks us all to reconsider our anger toward the poor overworked employees of his unit.
DeSantis has a few major points. They include: 1) I had nothing to do with my boss Joe Cassano's toxic credit default swaps portfolio, and only a handful of people in our unit did; 2) I didn't even know anything about them; 3) I could have left AIG for a better job several times last year; 4) but I didn't, staying out of a sense of duty to my poor, beleaguered firm, only to find out in the end that; 5) I would be betrayed by AIG senior management, who promised we would be rewarded for staying, but then went back on their word when they folded in highly cowardly fashion in the face of an angry and stupid populist mob.
I have a few responses to those points. They are 1) Bullshit; 2) bullshit; 3) bullshit, plus of course; 4) bullshit. Lastly, there is 5) Boo-Fucking-Hoo. You dog.
AIGFP only had 377 employees. Those 400-odd folks received almost $3.5 billion in compensation in the last seven years, a very large part of that money coming from the sale of credit default protection. Doing the math, that averages out to over $9 million of compensation per person.
Ask yourself this question: If your company made that much money, and the boss of the unit made almost $280 million in just a few years, exactly how likely is it that you wouldn't know where that money was coming from?
Are we supposed to believe that Jake DeSantis knew nothing about Joe Cassano's CDS deals? If your boss and the top guys in your firm were all making a killing selling anything at all -- whether it was rubber kayaks, generic Levitra or credit default swaps -- you really wouldn't bother to find out what that thing they were selling was? You'd really just mind your own business, sit at your cubicle and put your faith in the guys up top to fill you in if there was something you needed to know?
And....a mystery mole fought to keep the bonuses in the stimulus bill--
Who in the Obama Administration pushed to weaken a key anti-bonus provision in the stimulus bill last month? Sen. Chris Dodd, who wrote the provision -- and ultimately agreed to defang it -- isn't saying.More outrage--
Goldman Sachs and a parade of major European banks, including Deutsche Bank , France's Societe Generale and the UK's Barclays , were major beneficiaries of more than $90 billion (64 billion pounds) of money paid out by AIG in the first three-and-a-half months after its bailout by the U.S. government last September.
The disclosure by AIG on Sunday is likely to trigger further criticism of why Goldman, with its many government links, and the European banks were funnelled such huge sums of U.S. taxpayer money after making bad bets on various securities, as well as strengthening the case of those who believe the whole bailout was botched.
And definitely-- Geithner needs to go (Treasury knew about AIG bonuses earlier than Geithner claims).
Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve, the American International Group is preparing to pay about $100 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.
In case you are not outraged enough-- here's the story of how Summers and Geithner tried so very hard to limit the bonuses.
AIG trail leads to London 'casino'
Since 1987 the American financier Joseph Cassano has divided his time between London and Connecticut, where AIG, the world’s largest insurance company, runs a subsidiary called AIG Financial Products.
For most of those 21 years life has been good for the bespectacled, intellectual-looking Cassano.
The Wall Street veteran rose to run his part of the insurer, AIG Financial Products. When in London he commuted from a company flat behind Harrods to his unit’s office at 1 Curzon Street in Mayfair’s hedge fund alley.
Cassano’s pay over the past eight years, according to US Congressional records, totalled $280m (£162m).
Then at the end of 2007 Cassano’s fortunes changed. The company’s accountants changed the basis on which they valued much of the collateral held by its units. Some half a trillion dollars worth of credit default swaps written by AIG Financial Products were marked down.
Credit default swaps, or CDSs, are quasi-insurance products bought by investors seeking protection against defaults on mortgage-backed securities and other credits.
In contrast to the remarkable profits it had tallied until 2007, the AIG subsidiary headed by Cassano began to report quarterly losses. The unit went from being star performer to vortex of a gathering nightmare.
On April 1 Cassano was nudged into retirement. In keeping with the bubble-time executive compensation practises established in the City and on Wall Street, however, the blow was softened. Cassano was allowed to continue using the company flat behind Harrods. He was given a consultancy and, according to former AIG chief executive Martin Sullivan, testifying to the US Congress, helped AIG unwind the rapidly devaluing CDSs held by AIG Financial Products. Cassano’s pay for this work was $1m a month for nine months.
On September 16 the American insurer suffered a liquidity crisis following the downgrade of its credit rating. AIG had to beg the Federal Reserve Bank for an $85bn credit facility in return for giving up 80 per cent of its equity to the US government. This poured fuel on the fire ignited by the bankruptcy of Wall Street investment bank Lehman Brothers a day earlier.
A Sunday Telegraph investigation has determined, however, that there is a row brewing between the scores of regulators responsible for AIG’s activities in 130 countries. In the forefront of this row stands Britain’s financial regulator, the Financial Services Authority.
The operations of Cassano and his colleagues at 1 Curzon Street are attracting the attention of government officials in Washington, New York and Paris as well as London. Bumbling by the FSA, according to regulators in other countries, may have played an instrumental role in sparking the credit crunch that brought the global financial system to the brink of collapse.
This is already making political waves. Distancing himself and his government from the bad news, the Prime Minister Gordon Brown has repeatedly contended the financial crisis was made in the USA – where poor Americans in Rust Belt cities like Cleveland and Detroit fell behind on mortgage payments.
The reality has always been more complex. A financial chain links American sub-prime mortgages to the packagers and sellers of those mortgages in the City, as well as on Wall Street.
Now the role of AIG’s London office, and the FSA in overseeing what went on inside it may change all that.
“We need an inquiry to establish what happened with the FSA’s regulation of AIG’s London operation,” Cable said.
Since AIG’s collapse in September, insurance regulators in various jurisdictions have played pass the parcel, each regulator seeking to distance itself from the CDS firm’s London business, according to politicians in Washington, such as the US Congress’s Waxman, as well as here.
The spectacle is reminiscent of the regulatory response to the collapse in the early 1990s of BCCI, a bank with operations in London, Luxembourg and the Middle East. BCCI regulators in its multiple jurisdictions, including London, dodged responsibility for not spotting BCCI’s $10bn fraud by blaming each other.
On Friday, Adair Turner, the FSA’s chairman, declined to answer questions about AIG’s London operation.
Meanwhile, people close to the City regulator explained that AIG Financial Products, the unit responsible for the insurer’s failure, fell outside its jurisdiction.
Under FSA rules, these people said, AIG Financial Products was deemed an “internal treasury operation” and, like the internal treasury operations of other companies, was not regulated.
But the FSA does have regulatory oversight responsibility for a number of AIG units in London, including a company called AIG FP Capital Management registered at 1 Curzon Street.
People close to the FSA said AIG FP Capital Management is a separate company from AIG Financial Products and is not involved in the business of creating credit default swaps.
There is little doubt, nevertheless, that US lawmakers consider London an epicentre of the AIG Financial Products disaster. During the hearing into the causes and effects of the AIG bail-out on October 7, the US House of Representatives Oversight Committee, led by Congressman Waxman, politicians pmentioned [sic] London a dozen times. California Congresswoman Jackie Speier referred to AIG’s Mayfair business as “the casino in London”.
Testimonies by former AIG chief executives Martin Sullivan and Robert Willumstad, along with a New York Times article on September 28, sketch the story of the AIG Financial Products unit in London.
It was originally staffed by executives, including Cassano, from defunct Wall Street investment bank Drexel Burnham Lambert. Drexel’s legendary junk bond king, Michael Milken, was investigated for insider trading in the 1980s and pleaded guilty to six charges.
In contrast to standard practice, however, AIG Financial Products did not hedge its exposure to a possible fall in the CDS market. In a footnote to AIG’s 2007 accounts spotted by Forbes magazine, the company declared: “In most cases AIGFP does not hedge its exposures to credit default swaps it has written.”
Last November, when AIG’s accountants asked the insurer to change the way it valued CDS’s, the comparatively small base of capital on which AIG Financial Products had built a mountain of business became visible. This began the unravelling that led to AIG’s central role in sparking the global financial crisis.
To date, no British authorities have said anything about AIG. In the US, in contrast, there are multiple investigations. In addition to the October 7 Congressional hearing into AIG, the insurer’s London business is now under scrutiny by the Office of Thrift Supervision in Washington and the New York State Department of Insurance in Manhattan.
Last week New York State Attorney General Andrew Cuomo sent a letter to AIG informing the company it was under investigation for “irresponsible and damaging” expenditures, among other things, for executive compensation packages that were not cut even as AIG drew down on the Federal Reserve’s $85bn credit facility to keep itself afloat.
Although the FSA will not comment on AIG Financial Products, there are indications from America that it is belatedly looking into the unit’s operations.
“There have been meetings and conversations” between Washington’s Office of Thrift Supervision and the FSA,” said Janet French, a spokeswoman for the Washington agency.
A person close to the New York State Department of Insurance said: “You can be certain there have been talks with the FSA.”
I did a little bit of reading on the FSA. They seem innocuous enough-- seemingly civic-minded government regulators. But I suspect they are like the US FEC-- overworked, understaffed, and likely subject to political pressure over which companies to investigate and which to avoid. Plus there is this legal gray area of jurisdiction that sleazy international companies take advantage of that made the situation worse.