AIG, American International Group, has been the recipient of some $123 billion of the Fed’s largesse. Exactly what have they done with that money? It’s anybody’s guess.
We are promised AIG’s quarterly report shortly, which will tell us what they are doing or have done with the 123 thousand million dollars of taxpayer money. Well, we know they threw a few parties since being ‘bailed out.’ A week after catching the Fed’s life preserver, AIG threw a California bash which featured spa treatments, banquets, and a few rounds of pricey golf, costing a mere $444,000. After catching severe media flak for this, AIG, undaunted, took another little jaunt over to a British hunting preserve for some Execs to the tune of $86,000. And, the Fed kept throwing multi-billion dollar life preservers to AIG.
Do I hear the ghost of Marie Antoinette laughing hysterically somewhere – ‘let them eat cake;’ why, they ate the whole universe of cakes, and then some.
How did AIG go from humble beginnings in 1919, when Cornelius Vander Starr, the first Westerner to sell insurance in Shanghai, established an insurance agency in China, to the recent, absolute annihilation of its stock prices, falling some 95% to $1.25 per share from a 52-week high of $70.13, on September 16, 2008? Go back and open those 401k and mutual fund statement envelopes and see if you shared this pain; many did.
I have a friend whose parents were kind enough to endow his 13-year old son’s entire college and graduate school education fund when the boy was born. There was $300,000 worth of stock just waiting to pay all those tuition bills one fine day when the boy becomes a man. What a wonderful, thoughtful present!
One thing though; all of the boy’s college fund was invested in one, single stock – of a company which was formerly believed to be too big to fail: AIG. Presto, Changeo, poof . . . it’s all gone. Talk about feeling your pain.
What did in this giant? AIG’s Financial Product division headed by Joseph Cassano had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA, but, some $57.8 billion were structured debt securities backed by those funky subprime loans, known today by the cynical as “Liar’s Loans,” earning the good Mr. Cassano an unenviable spot on CNN’s "Ten Most Wanted: Culprits" of the 2008 financial melt-down.
AIG’s empire was nearly worldwide and its products were many and varied, from insurance (including a 19.8% stake in People’s Insurance Company of China) to mortgages to aerospace to real estate to telecommunications. A number of times and in a number of cases, with perhaps more to come, AIG’s financial bookkeeping and accounting methods have come under intense scrutiny from multiple directions, looking for serious Hanky Pankey afoot. In November 2004, AIG reached a $126 million settlement with the U.S. Securities and Exchange Commission and the Justice Department. The New York Attorney General’s investigation led to a $1.6 billion fine for AIG and criminal charges for some of its executives.
An Instance of Greed or a whole lot of examples? Lawyers, accountants, financial professionals, consultants of all stripes, and many, many others will be able to pay their sons’ and daughter’s college tuitions for decades to come as they untangle the wreckage of this crashed and burned monster. Unfortunately, that is little consolation to my friend and his son.