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How Does One Lose $125 Billion?

By Larry Doyle on February 24, 2009 at 4:00 PM in Insurance Policies & Industry, Wall Street

It’s as easy as A-I-G…

While the government has pumped billions of dollars into Freddie, Fannie, the banks, the auto companies, and on and on it goes, the largest single government intervention into a private company centers on AIG. How are our investment dollars doing? Bloomberg.com reported:

“While I anticipated AIG would come back to the government begging for additional taxpayer dollars, I am disturbed that it has happened so soon,” said U.S. Representative Elijah Cummings, the Maryland Democrat who has criticized the insurer’s retention pay program, in a statement today.

The government saved AIG from collapse to prevent losses at banks that did business with the insurer.

“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Fed said in a report in November.

It is expected that AIG may announce a loss of upwards of $60 billion when it reports earnings next week. In anticipation of that, AIG is expected to request a further injection of capital to stem losses. Where do those losses emanate? CDS, those insurance contracts written by AIG to banks and funds around the world. This intricate web of contracts represents the massive systemic risk that truly is the centerpiece of our global financial problem. American taxpayers are stuck with the tab and will be paying over the next number of years.

Where were the insurance regulators? This derivatives business – housed in AIG Financial Products – developed, initially thrived, and answered ultimately to Maurice “Hank” Greenberg. Hank has a reputation as one of the most ruthless individuals in the world of finance. It is believed by some AIG veterans that under Hank’s watch the books were cooked via a money laundering scheme centered offshore and executed through an AIG office in New Hampshire. What happened?

Former New York Governor Eliot Spitzer forced Greenberg out of AIG but was never able to prosecute him. Why? Well, is there any doubt as to who exacted retribution on Spitzer and literally caught him with his pants down?

The problems at AIG did not just occur in the last few years. The culture of that organization was developed and dominated by Greenberg. The AIG Founder Wielded Personal Influence in Washington and there is little doubt that those relationships saved him from prosecution for money laundering, tax evasion, and accounting fraud.

AIG stock closed at .53 today. Greenberg is worth a pittance of his billions, but the American taxpayer is truly stuck with the bill.

LD

To read more: AIG Seeks To Ease Its’ Bailouts Terms

  • lark

    This incrementation of decrementations is a good formula for the introduction of communism. Keep incrementing decrementals until nothing is left.

  • lark

    I bet the stock market will react swell to that news.

  • lizzy

    More criminal lack of oversight! Everything at the taxpayer’s expense. When is our revolution coming?

  • getfitnow

    Didn’t AIG get a second infusion of cash last year around the time it couldn’t make its first loan installment payment to the government?

  • Linda Anselmi

    Thanks for keeping us informed, LD.

    Wish it is all so disheartening. Can’t even get some good enjoyment out at the downfall of the corrupt – since their taking us down with them.

  • Mercedes

    If the taxpayer refuses to shell out more money to cover these CDS, then I assume that some financial institutions would have to declare bankruptcy. If those institutions are backed by just high rollers with more so-called money than they know what to do with, then who cares. Let them go broke. I would care if institutional investors like retirement funds and local governments were affected. But if that is the case, I would think there would be a better way to go about protecting the entities that need protecting without catering to the spoiled, bloated, arrogant Wall St bankers and wheeler dealers who caused this whole mess in the first place. The fact that Mr Greenberg backed John McCain over Barack Obama is one point in Obama’s favor.

  • allimom99

    Thanks as always for keeping us updated. Yeah, Greenberg’s a real piece of work. A little OT, but have you seen Michael Hudson’s Counterpunch piece (crossposted @ blackagendareport.com. Would be interested in your take.

    • LD

      I honestly believe that interests are so misaligned and taxpayers so underrepresented in the process that they are bound to get the worst part of the trade. This is passed off to the public as in their interests. Now while there are parts of different programs and plans that truly are vitally necessary the people on the inside of the banks are able to adapt and stay ahead of the curve.

      I am not a conspiracy theorist although there are clearly some “bad” people in the midst of it but the way that our political system has developed pols are conflicted and generally unaware of the nuances of the banking system/Wall Street.

      At the core of all this is way too much greed on a lot of people’s parts with the seeming exception of many decent hard working Americans who play by the rules.

      I thank you for the plug and will continue to try to shed some light on all of this so that you and everybody else are more effectively able to navigate the economic landscape.