Serious Evidence of Fraud

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.

Insanity

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.

"Joseph Cassano: the man with the trillion-dollar price on his head"

Can one man in London really be to blame for the collapse of capitalism?

(snip)

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.

TIME Magazine Fellates AIG CEO Liddy

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.)

AIG Screws Chrysler and Taxpayers

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.

AIG bonuses four times higher than reported

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.”

AIG Subsidiary Rebrands Itself

Funny:

"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?

AIG Plans To Award Bonuses Even If Taken Over By US???

Oy:

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.