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Time to junk AIG
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.”
Obama’s AIG timidity
I’ve been pretty amazed at how silent the Obama administration has been about Robert Benmosche’s antics since becoming the well-compensated CEO of American International Group–the defacto government owned insurer.
But after reading this story in The New York Times, I was shocked to learn that many in the Obama administration are warying of looking like they are injecting themselves into the company’s affairs. That’s the case, even though many on Team Obama are upset with Benmosche’s $9 million pay package and his desire to move slowly in selling AIG’s assets.
WTF? Intefere, please. The taxpayers didn’t bailout this company so its high-living CEO can do as he pleases. The Obama administration has never sought to put anyone on AIG’s board–maybe it should.
James Kwak at Baseline Scenario is equally puzzled and disturbed by the administration’s hands-off approach to AIG.
Don’t like brain surgery or rocket science? OK, this is 20-30 times the scale of salary of the president of USA.
Actually this is the salary of all presidents and prime ministers of USA, UK, Japan, France, Germany, Russia and 10-20 more smaller countries
Do not like comparison with government bureaucrats?
OK, this is factor 50-100 of salaries of Stanford/MIT professors with Nobel prize.
Get real. This crockery has to be stopped. Financial bureaucrats are the same idiots like all other idiots around you. Did they predicted this recession? They did not predicted this recession. Not a single one. They together are responsible for this crisis and you pay them through the nose.
I’d be agreed to any salary to him if he say: OK, pay me $20M backdated to 2009 if AIG will be $300 in 3 years, till then pay me $1
Time to get tough with AIG
It’s time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group’s new $7 million chief executive.
Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer’s corporate offices in New York.
And in the short term, Benmosche’s vacation strategy appears to be paying dividends.
This week, AIG’s shares surged 44 percent, to nearly $50, after Benmosche said that he intended to move slower than his predecessor in selling off AIG’s still viable divisions.
Maybe Benmosche should consider relocating AIG’s headquarters to Dubrovnik.
But the big run-up in AIG shares is merely a sideshow for momentum players, speculators and Hank Greenberg, the former AIG chieftain who controls about 11 percent of the company’s outstanding shares.
The reality is that AIG exists today only because of the $180 billion lifeline the insurer has received from the federal government. Even Benmosche acknowledges that, telling The Wall Street Journal: “If the U.S. government doesn’t continue to support AIG, we will fail.”
Yankee Doodle had a car,
Bought with US bank debt.
He hit a bear and lost a wheel,
And drove down an embankment.
Spun the wheels and now he’s stuck,
In bad sub prime molasses,
Shame that Fred and Frank are sunk,
They might have lent a hand.
Along the road came Goldman Sachs,
Who heard poor Yankee holler,
“I might just help” wise Goldman said,
“If you could lend a dollar”.
He took his wand and waved it round,
His biro made a clicking sound,
“Just call your car a house” he said,
“And then there’ll be no problem”
So Yankee set out on the road,
To get federal assistance,
But help from nearby Bernanke
Would take a bit of distance.
On coming back, the sun beat down
Upon poor Yankee’s beaten brow
And so he stopped along the way,
To drink at Wall Street Bar.
“Get out, you swine” The owner cried,
“You have not learned your lesson”
For Yankee’s tab was well and spent,
And he was in recession.
The moral of the tale was lost,
And Yankee’s car, alas, the cost.
He focused too much on his speed,
And not where he was headed.
-
The Wall
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