Bernanke Says Insurer AIG Operated Like a Hedge Fund

[RedEarth]

March 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the company made him “more angry” than any other episode during the financial crisis.

Bernanke made the comments in response to a question from Senator Ron Wyden, an Oregon Democrat, at the Senate Budget Committee hearing today in Washington.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke said. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

http://www.bloomberg.com/apps/news?pid=20601103&sid=aCrzJbsxzKdk&refer=us

No regulation=Phil Gramm

[kirby]

1. My question -

Why aren't the CEO's and top executives behind this being hauled off the jail?

[denverbill]

3. Because they had to break a law to go to jail.

What I want to know is when they will be stripped of every dime they own. They made millions or billions gaming the system. I want them as homeless as the people hurt by the disaster they caused.

[Fresh_Start]

4. because for the most part laws were not broken

sometimes things were in the gray area of the law but many of the factors leading to the problem were mis-estimations and based on recent experience

[kirby]

5. I imagine a case of fraud can be levied...

Basically, they knowingly and willfully took questionable financial instruments, and packaged them into 'AAA' (best rated) assets and insured those based on 'AAA'.

Where is the investigation?

[Fresh_Start]

6. Not at all clear

they were using financial models to model the risk.

The models themselves were ultimately flawed and the assumptions used in the models were overly optimistic (although they matched recent experience)

We need to place part of the blame on the QUANTS and on the people using the analyses without understanding the limitations of the tools.

[kirby]

7. Regardless of the model...

Garbage in, garbage out...

It appears to me that they knowingly accepted questionable assets and labeled them as AAA. To me, that warrants a fraud investigation. They did this because they wanted to earn the insurance premiums. If the assets were labeled as they really were (not AAA), they probably would have not insured them and missed out on the 'profit' from the premium.

There is a lot of blame to go around, but AIG provided the insurance/assurance that allowed all sorts of people, including 401k's and such, to believe the underlying assets were AAA.

[Fresh_Start]

8. someone may well bring suit

but its not at all clear that a suit could win unless there is a smoking gun which proves that they actually knew better and misrepresented the situation

You can make many many mistakes in business and not be held legally liable.

[kirby]

9. I was hoping the Justice Dept would sue, not private...

Apparently the former CEO, Hank Greenberg, who took AIG in the direction of derivatives, is suing AIG for securities fraud. That should be interesting.

[Fresh_Start]

10. I can't even express how absolutely outrageous

I think his suit is.

Increasingly I believe that a major component of our society ills was the creation of the corporation. When you removed personal jeopardy from how people do business it inculcates a philosophy where you are not responsible for the consequences of your actions.

Bring back proprietorships and partnerships. Management needs to have some skin in the game.

[Fresh_Start]

2. wow, failure of regulatory environment

don't recall you championing improved increased regulation over the last 5 years

[bemildred]

11. Gee, who could have predicted this?

Greed motivates people to do illegal things if they think they can get away with it.
:wow: