Why is the Obama Admin still bailing out AIG ?

[bajamary]

From ProPublica

http://www.propublica.org/scandal/aig/

The federal government has loaned AIG around $170 billion since mid-September to rescue the faltering insurance company from bankruptcy. But the now-taxpayer-owned company has raised ire for burning through the cash, potentially hiding its losses, lobbying the government in favor of deregulation and doling out millions in bonuses.

AIG found itself on shaky footing after the company's financial products unit churned out $440 billion in mortgage-related credit default swaps, a type of unregulated insurance, without keeping the capital needed to back up its bets. When customers came a-knockin', AIG wasn't left with many options -- or any capital. The federal government has subsequently stepped in four times to rescue the foundering company:

On September 16, the Federal Reserve agreed to lend AIG $85 billion, taking an 80 percent stake in the company in return.

On October 8, the Fed padded that loan with an extra $38 billion when AIG needed more cash. By late October, AIG had already burned through three quarters of the combined loan.

On November 10, the Federal Reserve and the Treasury Department revamped the terms of the rescue plan yet again, bringing the new grand total to $152 billion.

On March 2, the federal government agreed to provide an additional $30 billion to AIG, which had just reported a quarterly loss of $61.7 billion.

Shortly after its fourth federal bailout, AIG caused an uproar with the news that it was doling out hundreds of millions of dollars in bonuses to employees in its financial products unit. It also disclosed the names of its trading partners: U.S. and foreign financial institutions that have reaped $49.5 billion from AIG's rescue funds.

Other criticisms of AIG have cropped up too. It's been scrutinized by the FBI over whether it concealed massive losses on mortgage-related investments from investors and auditors. It was criticized for lobbying against a new law that cracks down on mortgage fraud after receiving government aid. And, as ProPublica reported in February, AIG didn't tell potential buyers of Alico, one of its subsidiaries, about an unresolved tax issue.

Essential Reading

The New York Times goes inside the London-based AIG Financial Products, which churned out credit-default swaps like a factory. Its swaps portfolio, valued at $500 billion in 2007, has been widely blamed for the company's near-collapse.
Here is ProPublica's AIG coverage, including a timeline of the company's demise.
This is a good rundown of the various bailouts.
McClatchy compiled some key documents related to AIG's bailout and bonuses.

http://www.propublica.org/scandal/aig/

[leftchick]

1. Summers

and Geithner. We are turds to them.

[FrenchieCat]

3. Summers and Geithner are not boogeymen,

and your thinking that they are is sad,
is no better than those on the right believing Chavez a boogeyman,
and him thinking they are turds.

[bajamary]

7. are you that clueless?

Geithner & Summers were part of the deregulation gang that helped ignite this financial crisis.

You may not agree with a person's opinion, but you CAN NOT deny the facts that these 2 men were instrumental to the deregulation of the American financial system.

[leftchick]

12. not clueless

more like blinded by the light. ;)

[leftchick]

15. apparently

you refuse to connect the dots. aka: la di da la di da....

http://www.truthdig.com/report/item/20090318_perp_walks_instead_of_bonuses/

The bailout is a response to a banking crisis that resulted from the radical deregulation pushed by former Goldman Sachs honcho Robert Rubin when he was President Clinton’s treasury secretary. Another Goldman Sachs chairman-turned-treasury-secretary, Henry Paulson, in the Bush administration designed the trillion-dollar bank bailout that will go down as the greatest swindle in U.S. history.

It was because of Paulson that AIG was saved from bankruptcy hours after Goldman rival Lehman Brothers was allowed to go down the drain. Why that reversal of strategy in a top-secret meeting called by then New York Fed Chair Timothy Geithner, a Rubin protégé and now Barack Obama’s treasury secretary? Why was Goldman’s Lloyd Blankfein the only financial industry CEO in attendance? When that news leaked out, his role was defended as that of a noninvolved concerned citizen with expert knowledge, and whose firm had no direct monetary stake in the outcome.

That was a lie.

Goldman Sachs was into AIG insurance policies for at least $20 billion, which is why the firm got that $12.8 billion while Paulson was in charge. It took six months for the embarrassing facts to finally come out. The bailout program was administered by Neel Kashkari, a former Goldman Sachs VP; why are we not surprised at that?

Another pretend innocent in all this is AIG’s CEO Edward M. Liddy, famed defender of the $440,000 AIG executive retreat in Monarch Beach, Calif., held on the heels of the taxpayer bailout. His actions now are defended as mistakes made by a well-intentioned outsider who decided to work for a dollar a year after Paulson appointed him head of AIG. That is just garbage.

[FrenchieCat]

2. Where they supposed to stop

simply because the corporate media
was able to get folks focused on bonuses?

Obama is the President.
He told us the course he was taking and why.
The buck stops with him.

But stupid questions are just that.

[bajamary]

4. no, the buck gets passed to us

[quiller4]

20. AIG runs low on cash as it makes good on policies

issued to banks that insured what are now worthless investments. If AIG stops paying out on these and other policies then financial institutions all over the globe will come crashing down. You may think the credit market is tight now but that is nothing compared to what it would be if lending institutions couldn't insure against losses.

[Mike 03]

5. Because if AIG crashes, we all go down. NT

[cliffordu]

8. I kinda get more dubious about that by the day...

Everything that AIG and their ilk have said so far has turned out to be bullshit and onions, and I don't think breaking them up and selling them off and jailing the perps in this caper is a bad idea.


Prison for Everyone!!!!

[bajamary]

9. Kool Aide talking

Many respected economists strongly disagree with the concept that "If AIG crashes, we all go down"

In fact, it is the opposite that is true.

Think about it without thinking you have to "defend President Obama".

It's the financial Brawl Street insiders who are benefiting.

Are you?

I know I'm not.

[Mike 03]

11. Okay, fine with me. Let AIG go. I don't actually care.

I don't have a pension plan, or a 401K.

I'm fine with that: Let it go.

[elleng]

6. My early thinking on this:

AIG insures zxillions of cos., transactions, so, w/o their ability to honor those insurance contracts, zillions are up a creek.

[Joanne98]

10. Here's their commodity index website.........

http://www.djindexes.com/aig/index.cfm?go=home

The DJ-AIGCI is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as "rolling" a futures position.

The DJ-AIGCI is composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). Trading hours for the U.S. commodity exchanges are between 8:00 am and 3:00 pm ET. A daily settlement price for the index is published at approximately 5:00 pm ET.

Indexes in the DJ-AIGCI family are calculated on both an excess return and total return basis. The excess return indexes reflect the return of underlying commodity futures price movements only, whereas the total return indexes reflect the theoretical return on fully-collateralized futures positions.

Included in the DJ-AIGCI family are sub-indexes representing the major commodity sectors within the broad index: Energy (including petroleum and natural gas), Petroleum (including crude oil, heating oil and unleaded gasoline), Precious Metals, Industrial Metals, Grains, Livestock, Softs, Agriculture and ExEnergy. Also available are single commodity indexes on all of the individual components of the DJ-AIGCI, plus cocoa, lead, platinum and tin.

The DJ-AIGCI family additionally includes forward indexes, which are designed to represent the index composition one, two and three months into the future. These forward indexes meet the increasing interest in tracking exposure to longer-dated commodity futures contracts. Yen, Euro, Swiss Franc and Pounds Sterling denominated versions of the DJ-AIGCI and the DJ-AIGCITR also are maintained. For a complete list of indexes
http://www.djindexes.com/aig/index.cfm?go=home

Just an example of what "to big to fail" looks like. This isn't even counting the banking/insurance/stocks/

[Mike 03]

13. After deep reflection, I say: Let AIG fail.

Fuck it.

Thank you DUers who have persuaded me to just not give a shit about this.

You are probably right. Who cares?

[customerserviceguy]

16. Complete and sudden failure

would be an incredible shock to the economy, but an orderly dismantling of AIG would be in the public's interest. I doubt they could have gotten in that much trouble if they had not been so damned big in the first place. The fairy-dust 'securities' would have been laughed at if they had been offered by an insurer which was considered a small-potatoes institution, AIG's bigness made them almost irresistable.

It's like Bernie Madoff, with his history of founding the NASDAQ and his sterling reputation (up until he picked the day to have his sons turn him in) he had everybody's confidence. He was "too big" to be anything but legit in the minds of his investors.

The only difference between Bernie and AIG? Hank Paulsen wasn't going to write checks to Madoff's investors.

[stillcool]

18. I agree...

There are way too many experts here on the global financial institutions, the Treasury, and the Federal Reserve. I was thinking about reading up, and trying to educate myself on how all this works, but I already know the answer. Get someone who has never worked in the Federal Reserve, on Wall Street, or in the Treasury confirmed, and let them take over.

[Mike 03]

14. Kick and Rec NT

[madrchsod]

17. maybe because they control many state and private pension funds?

not all of aig is insolvent. aig should be broken up into stand alone divisions and the government work with new management to resolve the problems in the "bad" divisions.

[burythehatchet]

19. I'M REPORTNG YOU! BOW DOWN NOW AND ASK FORGIVENESS

[bajamary]

21. oh, please don't report moi

Please, please I'm too young to be "reported on".

I shall be silent forever after this....

from Frank Rich's column from Sunday's NY Times (http://www.nytimes.com/2009/03/22/opinion/22rich.html)


"...why has there been so little transparency and so much evasiveness so far? The answer, I fear, is that too many of the administration’s officials are too marinated in the insiders’ culture to police it, reform it or own up to their own past complicity with it.

The “dirty little secret,” Obama told Leno on Thursday, is that “most of the stuff that got us into trouble was perfectly legal.” An even dirtier secret is that a prime mover in keeping that stuff legal was Summers, who helped torpedo the regulation of derivatives while in the Clinton administration. His mentor Robert Rubin, no less, wrote in his 2003 memoir that Summers underestimated how the risk of derivatives might multiply “under extraordinary circumstances.”

Given that Summers worked for a secretive hedge fund, D. E. Shaw, after he was pushed out of Harvard’s presidency at the bubble’s height, you have to wonder how he can now sell the administration’s plan for buying up toxic assets with the help of hedge funds. It will look like another giveaway to his own insiders’ club. As for Geithner, people might take him more seriously if he gave a credible account of why, while at the New York Fed, he and the Goldman alumnus Hank Paulson let Lehman Brothers fail but saved the Goldman-trading ally A.I.G.

As the nation’s anger rose last week, the president took responsibility for what’s happening on his watch — more than he needed to, given the disaster he inherited. But in the credit mess, action must match words. To fall short would be to deliver us into the catastrophic hands of a Republican opposition whose only known economic program is to reject job-creating stimulus spending and root for Obama and, by extension, the country to fail. With all due deference to Ponzi schemers from Madoff to A.I.G., this would be the biggest outrage of them all."



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[bajamary]

22. "...why has there been so little transparency and so much evasiveness so far?"

from Frank Rich's column from Sunday's NY Times (http://www.nytimes.com/2009/03/22/opinion/22rich.html )


"...why has there been so little transparency and so much evasiveness so far? The answer, I fear, is that too many of the administration’s officials are too marinated in the insiders’ culture to police it, reform it or own up to their own past complicity with it.

The “dirty little secret,” Obama told Leno on Thursday, is that “most of the stuff that got us into trouble was perfectly legal.” An even dirtier secret is that a prime mover in keeping that stuff legal was Summers, who helped torpedo the regulation of derivatives while in the Clinton administration. His mentor Robert Rubin, no less, wrote in his 2003 memoir that Summers underestimated how the risk of derivatives might multiply “under extraordinary circumstances.”

Given that Summers worked for a secretive hedge fund, D. E. Shaw, after he was pushed out of Harvard’s presidency at the bubble’s height, you have to wonder how he can now sell the administration’s plan for buying up toxic assets with the help of hedge funds. It will look like another giveaway to his own insiders’ club. As for Geithner, people might take him more seriously if he gave a credible account of why, while at the New York Fed, he and the Goldman alumnus Hank Paulson let Lehman Brothers fail but saved the Goldman-trading ally A.I.G.

As the nation’s anger rose last week, the president took responsibility for what’s happening on his watch — more than he needed to, given the disaster he inherited. But in the credit mess, action must match words. To fall short would be to deliver us into the catastrophic hands of a Republican opposition whose only known economic program is to reject job-creating stimulus spending and root for Obama and, by extension, the country to fail. With all due deference to Ponzi schemers from Madoff to A.I.G., this would be the biggest outrage of them all."