The crime in buying AIG time
Good analysis here. Bottom line:
Let’s tie it all together.
New York Gov. David A. Paterson (D) is going to violate regulations and allow AIG to borrow up to $20 billion from its subsidiaries. Timothy Geithner, president of the Federal Reserve Bank of New York approves this transaction. New York state insurance superintendent Eric R. Dinallo claims “At this point the insurance companies are financially strong and solvent and fully able to meet any claims.” In the proposed swap-o-rama the spokesman for the superintendent claims “We’re not going to allow them to put junk in the place of good stuff.” (as if he has any clue).
Here’s the Deal
If the “insurance companies are financially strong and solvent” why the hell do they need to raise $75 billion in another all night poker game with every rule in the book being broken to do so?
What’s At Risk?
Life insurance policies, retirement annuities, and those with policy coverage against all manner of calamities, from financial to natural disasters are put at risk just so AIG can make good on a bunch of derivative bets gone bad.
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A pox on AIG. Ever dealt with them? My car was damaged by one of their covered commerical operators. It took 120 days for them to reimburse me for out of pocket expenses for rentals. They lied when the truth would fit better. I finally turned them in to the State Board and got immediate action.
David A. Paterson is a clown. Someone must of told him this was a great way to increase tax revenue.
TexasEngineer: Jackrabbits, Tigers or Lions?
=============
Thank goodness my kids piggy banks are fully funded because I am going to start writing a whole lot of I.O.U.s to them.
Its time to upgrade my Bentley….
We are all going to pay for this larceny… eventually.
When are we ever going to learn? We allow companies to be banks, insurance providers, brokerage companies all at the same time and then when this happens, we wonder how this happened. Large multi-business line companies are not what made the country great. When is Congress and the regulators going to grow some “Malkins”?
Of course, as we all know, this is all the fault of the Bush administration’s failed fiscal policies. The fact that companies choose to make bad loans, in the hope of some “pie-in-the-sky” payback has absolutely nothing to do with it.
It’s CYA time on Wall Street, and they’re covering it with our taxpayer dollars! Or maybe not – I don’t know if we make enough, collectively, those of us that put in an honest day’s labor and don’t suck off the government teat, to pay off AIG and all the other companies that will be lining up for a handout, as well as pay out all the accumulated benefits to everybody on the dole, both here and everywhere else in the world we’ve decided to buy.
Maybe they think that all the government has to do is ink the presses, and churn out three or four billion more dollars each day. Or maybe they really DO believe that money grown on trees(I could use one of those in my back yard).
If this goes through, and the loony left manages to come out on top in this election, we can all collectively kiss our way of life good-bye.
So you are proposing more regulation? More “official” stuff from congresspeople? Last I checked, congress (and by extension, generally all of the regulatory bodies they start/oversee) know less about economics than the average 3rd grader.
Something tells me the premium on my AIG insurance policy is about to go up.
It’s the blind leading the blind. Forgive the pun, but it’s true!
My mother has a SunAmerica-AIG retirement fund. All her funds are there. I was just appointed POA because she suffered a stroke 4 weeks ago and has entered hospice. All the money to provide 24/7 care for her is coming from this retirement account. I don’t know anything about this financial stuff. I’m sure she lost money yesterday. Can anyone advise me on what or if there is anything I should do? I am meeting with her financial planner later this week, but right now I just feel sick.
I love how the spin on this is going.
They are blaming changing the regulations that a republican congress passed as the root cause of all the problems. The law that Bill Clinton signed. So it is of course the Replubicans fault.
But bad laws that Democrats pass that George Bush signs are of course also the Replublicans fault.
God forbid we blame the people running the companies that were driven by greed. Most of whom supported Democratic candidates.
Paterson was on Cavuto yesterday, whining about how much $$ Wall Street contributes to the NY economy on an annual basis. Do you think they could cut down on all the welfare they hand out? Is Rudy going to run for gov and try to straighten everything out? I thought I heard that somewhere…
I’m not in favor of the government bailing out any failing businesses, but in this case, AIG has a trillion dollars in assets, but has somehow managed to overdraw their household checking account. Granted, they have overdrawn it to the tune of $75 billion. But should the firm fail, and put another several thousand people out of work instead of having the rules modified so that they can borrow from their own NY subsidiaries? Unless AIG’s NY policyholders start dying in droves, they will be able to put these assets back before they are needed. In this case, the Fed and Treasury seem to be playing hardball, and not going for the “bailout”.
As Maria Bartiromo reported on CNBC last evening, there are a number of private equity firms that would like to buy into AIG, but if they were to own more than 25% of the company, then they too would have to be regulated just like a bank. Who would want that headache now?
I am interested to see how this plays out. In my opinion, it is sort of like capitalism with one arm tied behind its back.
LOL…none of the above.
Pirates.
On September 16th, 2008 at 2:22 pm, conservativesRus said:
No, I don’t want more government regulations, just enforce what we have. What I mean is the government is going to have to allow those private firms that are willing to take enormous risks, to fail. We cannot bail out private companies in hard financial times. When the government passes such laws as the Community Reinvestment Act forcing lenders to make loans to risky borrowers, then this is the kind of crap that we are going to get.
Sacrificing the good children to save the bad. Let the company go bankrupt and sell off the parts. Test the theory that no company is too big to fail. The resulting credit crisis will probably be twice as bad as last years, but the fantasyland on Wall Street (that their failed practices and procedures) can still be saved, HAS GOT TO END.
OK off of 175
Former Tiger….
Bingo!
Sad, but true. But, this is the problem: most of NYS’ eggs are in this basket. Too bad outmigration of business and people have robbed this state of any possible *additional* sources of revenue.
Ask any Schenectadian how that city suffers now that GE is a shadow of its former self. Proof positive that if you tax them, they will leave. It sucks when your refuge becomes a trap, no?
On the other hand, I shudder to think of what happens when a large number of people are financially crippled by a series of failures like we’re seeing now. The multiplier effect surely works both ways. I like the idea of those responsible “sucking it up,” but if that group of people is large enough, they can drag the rest of us responsible souls down with them. *out*
On September 16th, 2008 at 2:16 pm, d1carter said:
I was thinking the same thing yesterday after Bank of America bought Merrill Lynch, having bought Countrywide a couple months ago. All with the SEC’s blessings.
Years ago i put my money in First Virginia Bank, which became Nations Bank, which became Bank of America. Who said bigger is better?
Picture: all lending institutions that participate in the Community Reinvestment Act should have a promionent sign in their window: “We proudly support C.R.A.P.”
d1carter – thanks – the way I read your original post wasn’t apparently what you meant. I do agree – if the company takes risks and they don’t pan out, they should be allowed to fail. And the “stakeholders” shouldn’t be bailed out either. “Buyer beware” – in ALL aspects of it.
One thing I haven’t noticed in the news reports (yet): how much do the directors, CEO, CFO, COO, etc. of AIG get paid? They might be getting overpaid.
In 2005, Sullivan made 2.1 Million per year in total compensation (bonus, stock, salary, etc.)
In 2006, Sullivan was ranked 8th highest paid CEO in the Insurance bizz by Forbes, making over 11 Million in total compensation per year.
in 2007, his pay was over 27 Million.
I wonder why the big increases. What kind of practices did he implement to garner that kind of pay raise, especially considering the record losses in the first 2 quarters of this year.
Instead of an almost 50 Million Golden Parachute as stated above (another report had that number at 68 Million), this guy should be doing hard time in the NY State Penitentary.
If only it was a crime for ruining the saving’s that people spent their whole lives working for.
Of course, it’s business as usual on Wall Street. Instead of justice served, it’s caviar served.
Did you hear of one single insurance carrier ask for a bailout after 9/11? There were several re-insurers who had to close up shop when the WTC fell, but not one asked for a bailout.
I’ve worked in the insurance industry for 20 years and know a little about risk management. Our economy would not withstand a collapse in the insurance industry. This arm of the financial industry needs to be strong and hold up the rest of the economy…or all sectors will topple like a house of cards.
Hmmm, seems a good number of the companies in trouble are typical TV sponsors of weekend PGA tourneys.
Does this mean TV golf will go into depression?
Patterson has no freaking clue what the hell he’s getting into. He’s putting up 20 billion of AIG assets (insurance policies) to prop up this sad excuse for a company. The problem with AIG is that it is so entangled in the housing mess that it’s hard to even unravel how they got into it, what exactly their “assets” and “bad debt” are and how to survive.
Patterson wants his part of the pie. God, NY is in such a bad way that when AIG does fail, the state and its citizens will be the ones with egg on their faces.
I’m bored. Let ‘em all come down. We can sort it all out in January because there are only 100 shopping days left until Christmas!!!
BTW, did anyone see where I left my vacation treehouse here in Galveston?? I know it was right here last week…. or was it over there….
Freedom to succeed and enjoy the fruits of your labors necessarily includes the freedom to fail. Risk has always been a part of our great system. WHen there is no consequence for failure, failures proliferate.
Not until they lock up Congress and a long succession of presidents for running up several trillion dollars of debt.
AIG was facing a severe cash crunch on Sep 15 as ratings agencies cut the firm’s credit ratings, forcing the giant insurer to raise $14.5 bn to cover its obligations–> people close to the situation said that if the insurer doesn’t secure fresh funding by Wednesday Sep 17, it may have no choice but to opt for a bankruptcy-court filing.
This is a big problem as an AIG collapse would expose 300bn+ in loans and mortgages for European and American banks. These are listed as positive balances in these financial institutions, and this allowed them to lend more relative to their own actual assets. If AIG goes belly up they are left exposed as their own loans now suddenly have the assets backing them greatly reduced. These banks would then be required to raise additional money from a market that is already unwilling to lend as they need the assets themselves. This is why Lehman Brothers can die but AIG is another story. If this fails the implications will be widespread.
I think we need to let AIG go down as a thumping now will be less painful than if we put it off, but it will be painful.
Bank of America agrees to buy Merrill Lynch for USD50bn.
This is just insane as a business investment as Merrill Lynch was going to be worth half as much if Bank of America waited a day! Bank of America took a 25bn dollar loss in 24 hours. There is no way they didn’t get Fed assurances and/or pressure for this. Either that or they better put the crack pipe down!
Only Michelle could think a good analysis of this situation could be covered in a few paragraphs.
$75 billion = $245 from every man, woman and child in the USA (legally).
Start the presses and print more money – pronto!
sharukkin – all of that is “paper”. The real question is what are the underlying assets?
If there are two boxes with covers on them in front of you, one says “box of money” the other box says “empty” – but in fact both are empty. Which box do you trust for your financial security?
conservativesRus said:
sharukkin – all of that is “paper”. The real question is what are the underlying assets?
There are no underlying assets! That’s the problem. Many of the assets are mortgages which are falling in value or cannot be accurately valued due to market conditions.
The Fed is afraid of what will happen if they do nothing, and also wary of providing the cash as it never seems to end.
The main point in providing loans is to prevent cascading defaults. If they had the assets none of this would be on the table as they could secure loans themselves with those assets. It would just be at a higher rate due to tight credit conditions.
Jack Vogle is speaking on Fox Business now. Speculation is the problem with the market today. We are going to get rid of “summer soldiers and sunshine patriots”. He has been through 10 bear markets. He says stay the course and let the market weed out the weak links. I just wish we could do this in Congress.
So… this is like giving your drunk brother-in-law more cash to get through his shortage of cash. Of course the infusion of cash will cause him to turn over a new leaf and become prosperous and a functioning part of society…. errr… or not.
Now Dems will want “MORE REGULATION”.
I think the “regulation” that will fix this would be to require these companies to “Eat it” when they screw up… thus they will know there will not be a big taxpayer safety net waiting for them before they hit bottom.
Perhaps that will be motivation to not venture into ill-advised financial territory.
Hey.. I’m all for making money… but if you live by the sword.. you may die by it.
Those “assets” are in their subsidiaries. Like the one Patterson allowed them to borrow from in NY.
The other big sub is in Texas and is flush with cash. AIG hasn’t sought nor been given permission to get a loan from the Texas Sub.
The Holding Co., if I understand it correctly, has the problem. The subsidiaries are the ones in good shape.
Maybe an analyst can explain it better. Any of you people market analysts?
Here’s the text of a portion of an article from chron.com It may shed some light…
Clearly, the management at AGI has failed. There is no reason for that company to continue forward with incompetant, or even fraudulent, management. AGI needs to fail, and the courts need to step in and break it up in a bankruptcy proceeding. If they actually have the ‘trillion’ in ‘hard reserves’, then this will not be a big deal as there will be several surviving companies. If they are lying about the assets, no amount of bail-out money will save them anyway.
I suspect there is a little truth in them having some assets, and this claim is all about getting a big golden payout for their executives. A payout they could never get in a bankruptcy court.
Funnelling money into the hands of the people who brought AIG to the brink doesn’t strike me as a wise. They failed for years to provide the leadership and financial decision making that was needed, so why should we believe they would suddenly find it now?
If in fact they have the assets they claim, then they shouldn’t have to be raiding their subsidiaries, or go for a government handout. A loan could be secured with these assets if in fact they exist.
You got it!! I had family in Tiger Town…all dead and gone now. Maternal grandparents were graduates of Mabank and Kemp.
Always good to find another Kaufman County type floating around out here.
Earlier this year my 2004 Jeep Cherokee insured with AIG had a premium jump from over $400 per six months to over $600 per six months. Then at the time of our premium increase we purchased a new car which added another $200 per six months premium. Sorry to say, we had to move our auto insurance to another carrier and only sustained a $75 increase for the new car. Ain’t Capitalism Grand?!?!
mom2jack, I’m very sorry about your mother’s health. However, I think it’s a bit too early to assume any capital losses in her AIG account. Even further deterioration of AIG’s situation might not put her account at risk. You should probably heed the advice of your financial planner, but I don’t think you need to do anything rash prior to your meeting later in the week.
This is just awesome! A company blows $75 billion and wants to borrow $20 billion more from its subsidiaries. Perhaps we’re not over the concept of high risk lending…
I don’t think they teach that concept in Ivy League business schools. However, I’ve heard you can major in corporate fraud and misfeasance.
Too late….
Drudge is reporting that the Fed is going to bail them out.
Local barter system/underground economy anyone?
Yes, that system has worked so well for Social Security, hasn’t it?
While I can appreciate the negative sentiments and comments, much of what is written above indicates a lack of understanding of how insurance companies and the secondary financial markets operate, as well as the implications of an AIG failure on the markets as a whole and therefore all of us.
Federal Reserve Buys Out 80% of AIG
By Ashish on September 16, 2008, at 9:22PM
Associated Press: The Federal Reserve has reached a deal with AIG to loan them $85 billion in exchange for 80% ownership of the company. The Fed’s main interest in the AIG buyout, according to the AP, is to avoid undermining the already fragile markets.
It’s worth noting that we don’t have any money. We’re in debt. So where will the $85 billion come from? We’ll borrow it from China, probably. Kind of like how all these people bought houses that they couldn’t afford, and that led to the current housing crisis, America is now buying companies it can’t afford. I’m not taking a stance on this either way, obviously there are many issues at play here. I’m just pointing out that people seem to be ignoring the fact that we are $9 trillion in debt, and that all of our money is now coming from China. Perhaps we should worry about financial independence as much as energy independence. Neither candidate has a plan that has any realistic shot at getting us out of debt. Infact, most experts say both plans will increase the debt further.
I understand that once we announce that various allegedly private companies will not be allowed to fail, we have adapted socialism. I suspect that you lack an understanding of the implications of that.
I wish I could get punished like that for screwing up.
I agree with your point, mistressjustice.
The bail-out madness show a major lack of confidence in the American citizen. If a business is allowed to fail, as it should be in the AIG case, another will take its place. We have no end to entrepreneurs and brave men and women who will try. It is the American resilience, not the government’s over-spending and taxing largess, that makes America the most incredible nation to ever grace God’s green earth.
God bless America, and up yours, Congress!