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Time to junk AIG

September 22, 2009

The federal government’s $180 billion effort to prop up American International Group has worked, averting an even bigger financial catastrophe. Now it’s time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government’s massive support.

And the report says it’s “unclear” whether AIG will ever pay back the $121 billion in government assistance that’s still coursing through its balance sheet.

The GAO report should provide the administration will all the ammunition it needs to get tough with AIG. The report’s conclusions should stiffen the spine of regulators in their dealings with Robert Benmosche, AIG’s new $9 million chief executive.

The former MetLife chief executive seems to act as if he has taken over a financial company that’s simply made one or two bad decisions — not one that nearly brought the global economy to its knees.

Benmosche’s plan to take his sweet time in selling off AIG’s assets might make sense if the insurer could someday stand on its own without the government’s help.

But the GAO report raises serious doubt about whether AIG will ever be self-sufficient again, noting that “the company continues to rely heavily on the federal government as its source of liquidity and capital.”

Worse, Benmosche is taking counsel from Hank Greenberg, AIG’s former longtime CEO, whose only concern is protecting his still significant equity stake in the de facto taxpayer-owned insurer.

Now Greenberg is trying to get Representative Edolphus Towns to take up his cause of restructuring AIG’s bailout package to make it easier for the insurer to live on.

But Towns, the chairman of the House Committee on Oversight and Government Reform, who once sat on the board of subprime mortgage lender MortgageIT, should not be taking Greenberg’s calls either.

It’s odd that the Brooklyn Democrat is taking a tough stance with Bank of America over its questionable acquisition of Merrill Lynch, but is fielding ideas from the man who oversaw AIG’s transformation into a financial behemoth.

The time for kowtowing to Greenberg must end. All this is doing is giving false hope to those investors who’ve been snapping up AIG’s shares on the belief the insurer can turn itself around. AIG can’t and it won’t.

With the worst of the financial crisis now past, it’s time to break up AIG and move on. AIG rightfully deserves to join Bear Stearns and Lehman Brothers on the ash heap of history.

A dissolution of AIG would serve as an important reminder to Wall Street and giant banks around the world, that there’s a price to be paid for becoming too big to fail — and then failing.

Comments

Spot on. Clearly not his own money. Enough is enough! Shut them Down

Posted by BadGold | Report as abusive
 

I wanna know who this guy is telling to short the stock each time before he writes an article… Bc every time an article is published, coincidence or not, the stock begins to tank. Is there an emailing list to get on or something?

Posted by Regular Person | Report as abusive
 

Me too, I have stock in AIG and would like to know BEFORE this guy posts these reports. We were up 25% yesterday, and today this guy writes this and we’re down 6% already. And we all know why the government supports AIG, and thats because the government pentions are insured by AIG. Why would they let a company that protects their fat pentions go out of business? All we can do is use the stupidity of EVERY SINGLE one of those congress members (im not taking sides, theyre all worthless) to our advantage and invest in AIG.

Posted by Tyler Wilson | Report as abusive
 

How much did your hedge fund buddies pay you to write this?

Posted by Stock Holder | Report as abusive
 

Don’t worry investors tomorrow will be up again, future will tell.

Posted by stock holder | Report as abusive
 

Greenberg’s plan makes no sense. Why would a investor, in this case the U.S. government, give up some of the value of its loans and its equity interest? I understand that a lender may want to offer a borrower some concessions in order to make repayment more likely, but than the lender will want more equity (or warrants), not less. If AIG does not have the capacity to pay back the loans under the current terms, they should face the same consequences as any other borrow – Bankruptcy. Why rescue them again?

Posted by Taxpayers Deserve Their Money | Report as abusive
 

Will restructure Aig’s bailout package? What is the timeline?

Posted by goldstein | Report as abusive
 

Goldstein I see you spew the same crap as you always do, get a brain. We get it you don’t like AIG, did your mom lose here retirement money?

Best thing for the taxpayer to get paid back is to ensure AIG survives and we wait till we get full value or close to full value of many of these assets that shouldn’t be sold at firesale prices.

Posted by Mac Skiba | Report as abusive
 

Just how much was AIG’s net profit in it’s best year (even with really slick accounting tricks)? I believe I read somewhere it was somewhere in the $3-$4 billion range. Please correct me if I’m wrong.

Would you lend someone with a $40,000 per year, after tax, income $1.2 million? (If you would, please reply because I have a great proposition for you.)

AIG is toast. The name has all the cachet of Enron.

It’s time to dismember the rotting hulk & cut our (taxpayer) losses.
Then, on to Citigroup!

Posted by StevenKs | Report as abusive
 

Here’s one for the upcoming G20 Summit:

Any financial institution – commercial & investment banks, insurance – will not be permitted to reach total assets of $500B. Existing one will be broken up into companies less than $500B. All these companies must pay annual premiums to the government to finance bailout safety net. Too Big To Fail Insurance.

First to get the treatment is Goldman Sachs.

Make my day.

Posted by The Real Deal | Report as abusive
 

Too big to fail among the private sector is too big. It’s time to dismantle these behemoths and restore legislation like Glass-Steagall Act that was enacted to prevent exactly what occurred after its repeal, and likely avert this frenzied financial fiasco of wanton greed by the investment banking community.

Posted by CeruleanBlue | Report as abusive
 

Maiden Lane 2 and 3 are the codenames for the credit facilities that encompass the massive almost $200 billion backstop given to AIG. The codenames assumably come from the name of their building’s headquarters. They lease the office space in that building from, drum roll please, G$! The same bastards that pumped out about 1 in 6 of the toxic MBS into the market selling them to pension funds as investment grade securities, all the while knowing they were shit, and then bring AID FPD on as a counterparty to hedge the losses they KNEW were going to accrue. In fact I dare say G$ probably had a hand in manipulating the market to guarantee the MBS fiasco. Before the bailout, they lapped off almost $6 billion in CDS shorts on the same MBS they were selling. This act pushed AIG to the brink of bankruptcy THEN. So the government decides to drop a blank check in their laps which they write out for almost $200 billion. Now, if 6 billion crushed them, and they were on the hook for another 180, how could or would they ever pay any of this back. They were leveraged an insane 30 to 1 ratio, and the 200 billion or so in counter party bets they made are just the tip of the iceberg, from many reports I read. As the housing market and other markets (such as commercial RE) deteriorate, people are going to start calling in the rest of their CDS bets, and AIG will again suffer massive losses. Are we expected to drop another $200-300 billion (or more) down their Alice in Wonderland rabbit hole when this revelation strikes? Restructure their debt my ASS!

Posted by J | Report as abusive
 

BANK ROBBERIES!! Matt, I respect your journalistic skills and integrity. Please send-up something on the continuing robberies of the American public by the bankers and their minions in Congress. It’s preposterous that these over-paid golfers are able to detonate our national debt, repeatedly, and the Fed (which is a banking institution, not a government institution) wipes their bottoms when duty calls (sorry…).
I think that these high-paid thieves have held us at ransom with the threat of “systemic failure”. Too bad I can’t cash-in on systemic failures when I get my electrical bill.
Please start a “media drum-in”. The average American bimbo is completely powerless. There aren’t two political parties: there’s only one, and you know its name.

Posted by Howard Perry | Report as abusive
 

Here we go again. The greedy hedge funds wiping-up fear to start another financial crisis, just so they can have something to short to make another killing on the backs of investors & the taxpayer.

Haven’t hedge funds done enough damage ?

Posted by ddavid | Report as abusive
 

actually, AIG is located on 70 Pine Street, a couple blocks from Maiden Lane. It’s also spread amongst several floors all over the Financial District and elsewhere. Maiden Lane is the address of the Federal Reserve Bank of New York. The first Maiden Lane LLC was created during the Bear Stearns fiasco, and was just what they came up with for names while meeting at the FRBNY. As far as I can tell, there is no “2 Maiden Lane” address.

GS management made the short CDS position largely without telling their traders. Traders were compensated for playing the game in the boom time, as they always are… so they played the game. Essentially, GS management second-guessed their traders — which is scary — except that they happened to be right — that one time. Michael Lewis wrote a great article about it maybe a year back. I don’t think anyone had a big enough vision to do what J describes in the CDS game of the MBS market. The scenario of further calls on those CDS’s seems unlikely to me too.

However, J’s final conclusion is spot on. Is AIG going to take further losses? Likely. Are they going to pay us back? Doubt it. Don’t put any more taxpayer money in the rabbit hole, and spin off the units of AIG.

Posted by tim | Report as abusive
 

Seems like the position of the commentors depends upon if they have stock in AIG. Most corporations, like governments get inefficient if they get too large. The company is clearly too large and too sick to survive. It will most likely never be competitive unless it goes into high risk markets and illegal activity. Time to get out the crying towels.

Posted by f belz | Report as abusive
 

To all those who are calling for Citigroup to be dismantled:

Taxpayers are sitting on a multi-billion dollar profit from C right now. Minimum $10 billion. And Citigroup is trying to shrug off government help. At least it is trying. Give Citigroup a chance.

What are you getting from AIG, other than getting jerked around? Forget this company and it’s $182.5 billion in loans. Put this company out of it’s misery already. It’s over.

Posted by A. Ron | Report as abusive
 

Right on Matt, this company should be dismantled immediately. We would be far better off as taxpayers if this company was dismantled and we took a loss, then if this zombie stuck around and waited for a rebound to sell its assets. The longer this “should have failed” business is around, the more damage it does to companies who are well run.

If we keep rewarding failure, all we are going to get is failure.

Posted by Trent | Report as abusive
 

Curious there exists some bodies who support AIG in this thread. Those finance PR and people who speculate on AIG stock rally should understand that the world has changed!

Posted by Rose Eli | Report as abusive
 

“What’s astounding is that Goldman has managed to get AIG to entirely subsidize its occupancy at 180 Maiden Lane since June 2008. At a current tab of around $44 per foot, about $3 million in taxpayer dollars is being shuttled from AIG to Moinian every month.”

(New York Post Aritcle)

Sorry I misspoke about that being their HQ. I bet I am spot on about the G$ thing though too and that further bets (CDO’s and CDS) are going to blow up in the next 18 months and it may be worse than the last financial nuke. The G$ shorting their own AAA products via AIG CDS’s WREAKS OF FRAUD. Anyone who cannot smell that gigantic maggot infested 500 lb tuna sitting in the room doesn’t have a nose. Wall Street has become, again, a gigantc pozi scheme with a casino built smack dab on top of it, all of which was probably built on an ancient Indian burial ground. You’ll see. You who read this were warned. I’m not a financial expert, but I know people. I correctly predicted this fiasco when Glass-Steagal was repealed.

Posted by J | Report as abusive
 

AIG’s speculating shareholders are like the people who jump on the city bus after it’s been in an accident hoping to sue the city and profit from the taxpayers. They have nothing coming.

Posted by Jeff | Report as abusive
 

There was a faint probability for AIG to get out of trouble post the $180 billion effort from the Fed. However consecutive losses quarter after quarter is too much for any firm to take. And with the magnitude of losses AIG has consistently displayed in its filings, one could only guess how much more is left to see. AIG is probably fading until and unless the federal government really resuscitates it back to life… and I mean literally!!
The amount of leverage that AIG had exposed itself to, has finally taken its toll, but what makes bigger larger banks like JPM still tick! JPM is going relatively strong, trading at $45 and gradually improving. It’s probably safe to say that JPM is probably in a bigger mess than AIG. I found a few things about JPM which I wasn’t sure I should know. Throwing a blind eye to it, would be like being a hypocrite…
In a bid to bolster non-interest revenues (trading revenues) JPM assumed leverage far in excess of its optimum capacity. Its oversized derivative exposure (notional value) has exploded to almost $80 trillion – a staggering 5-6 times the size of the US GDP. What’s more, the market exposure it had so far has been hedged among the coterie of large banks, exchanging the market risk for counterparty risk! The slightest disturbance could cause a financial storm within these banks. This could affect the financial system as well, keeping in mind that the total volume of derivative exposures in terms of notional value exceeds $200 trillion in the US.
There’s more in this report. Here’s the link:
http://boombustblog.com/index.php?option =com_docman&task=doc_download&gid=238

 

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