"Strictly Confidential" AIG Internal Draft Memo on It's Systemic Risk

AIG ^ | Feb 26 2009 | Unknown

[JerseyHighlander]

Aig-Systemic-090309 (This is an excerpt of the memo's headers)

AIG: Is the Risk Systemic? STRICTLY CONFIDENTIAL DRAFT – February 26, 2009

What is Systemic Risk?

Risk Assessment Summary

How Big is the Systemic Risk in Insurance ?

Impact on U.S. Government’s Efforts to Stabilize Economy

AIG’s Global Impact

General Impact on Economy

Life Insurance Policyholders: “Run on The Bank”

Impact on Retirement Savings

Consumer Finance Impact

Extensive Business Disruption

Extensive Business Disruption (cont.)

Impact on Global Capital Markets

Direct and Indirect Impact of AIGFP failure

Impact of Failure of ILFC

Seizure of foreign assets

Conclusion

[JerseyHighlander]

Please don't panic after reading this...

Here is some commentary from talking heads with a better grasp of the situation:

http://optionarmageddon.ml-implode.com/2009/03/11/insurance-guarantee-funds-another-mirage/

"if a bank goes bust, its depositors are protected (at least theoretically) by FDIC…….is there a safety net for insurance policy-holders? Well, kind of. Each state has its own insurance “guarantee fund,” a private consortium of insurers operating in the state who agree to fund certain policy-holder’s losses should one of their brethren turn up insolvent. Here is a list of all the guarantee funds, including their insurance limits and contact information.

But here’s the kicker: None of these guarantee funds actually have any funds. There’s no pot of money for a rainy day. No, state insurance guarantee schemes are “post-funded.” Bailout cash is raised AFTER an insurer fails."

http://www.calculatedriskblog.com/2009/03/strictly-confidential-aig-document.html

"AIG operates in more than 140 countries around the world, whose customers, regulators, and governments have thus far been refrained from liquidating or seizing assets based largely on the support given to AIG by the U.S. government."

"They mention how many have pension plans with them. Then they mention that many current retirees may receive their main income from them. But they don't mention how many current retirees there are. This sort of nonsense runs right through the document. Did they leave in this sort of spin to better deceive the public? Make it look like it really is for "your eyes only"? My guess is no. I'm not that kind of cynical. I'm the kind of cynical that thinks these morons are actually stupid enough to put into print claims that an AIG failure could dwarf Lehmans in collateral damage to the world economy. They should have done like Tony Soprano and kept it all verbal."

[JerseyHighlander]

http://optionarmageddon.ml-implode.com/2009/03/11/insurance-guarantee-funds-another-mirage/

http://www.calculatedriskblog.com/2009/03/strictly-confidential-aig-document.html

[dennisw]

AIG.... the CDS black hole

[PGalt]

The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially “powerful” states stand out among all the rest. The extent to which this process is going on may be judged from the statistics on emissions, i.e., the issue of all kinds of securities. - Vladimir Ilyich Lenin

We the people, our children, our grandchildren are being economically $ubjugated by our overlord$ and master$. We have become economic pawn$/peon$/involuntary $ervant$.

The $ocialization of ri$k $ociali$t$ along with the re$t of the $ociali$t$ are running the $how.

[JerseyHighlander]

They’re selling the rights to collect on our labor, like we were slaves on the auction block. They’re selling our children and grandchildren as futures contracts.

[PGalt]

Very well-stated, JerseyHighlander. Thanks.

[aeonspromise]

I have been speaking with some German folks who have said AIG is so big that the main point for saving them was to keep the world from falling(as in sky), why don’t they pay for it, leave our children and grandchildren alone, the new tax, make it come due so many generations out no one can remember.
Take the country back next election, all represenatives who have voted for these increases need to go no matter the party or politics..time to clean house oro let the termites rule..

[autumnraine]

Aside from the people losing claim benefits and premiums paid, the commercial insurance industry would buckle without AIG as a Work Comp insurer. The life side alone would be enough to hurt tremendously, but the employers would be stuck. And no state has enough money to ‘guarantee’ a company the size of AIG.

[TaxRelief]

Is AIG in anyway linked to the California Workmen’s Comp fiasco? My co-worker insists that is so.

[TigerLikesRooster]

This is WMD alright.

[ken21]

paulson wouldn’t say where the first money went,

nor will the new administration.

you have to assume that the money went to the large hedge fund investors worldwide, including governments.

[concerned about politics]

They’re selling the rights to collect on our labor, like we were slaves on the auction block. They’re selling our children and grandchildren as futures contracts.

The democrats are depending on the voluntary slaves to pay this all off. The tax paying slaves will continue to slave for the democrat base so they can have enough left over to feed and care for their own families.

The only way the slaves will ever be free is to back off spending, growing, and paying taxes of any kind. Unless there's a "Starve the ba$tards" movement in this country, the slavery will continue for generations. Every avoided tax is a move in the right direction.

[JerseyHighlander]

I don’t have any specific knowledge on AIG’s relationship to the California Worker’s Comp market. It’s a majot player and AIG’s subsidiaries own the RINOs and Dems in that state. Pretty sure conservatives R’s are also in AIG’s hip pocket.

[ding_dong_daddy_from_dumas]

[theBuckwheat]

I lay part of the blame for the systemic failure with the well-meaning risk avoidance taken by many companies that lead them to only accepting risks that could be insured, and ending up having AIG be the underwriter.

AIG became the risk nexus that itself was vulnerable to the rug being pulled out from under them by mark to market and FASB Rule 157. When coupled with the SEC’s elimination of the Uptick Rule, the collapse of asset values became a self-sustaining chain reaction downward.

BTW: the SEC still has not restored the Uptick Rule, and FASB is just this week reconsidering Rule 157. Each rule change was (again) only well-intentioned by learned committees of well-credentialed people, but each rule worked to make the collapse possible. And look at how reluctant each agency is to accepting that.

[dennisw]

This view of “Atlas Shrugged” has its detractors. “Ayn Rand romanticized capitalists,” said Jerome Tuccille, author of the libertarian history “It Usually Starts With Ayn Rand,” in a Thursday interview. “She saw them as great heroes. She doesn’t deal with these corporatists like Thain who were pushing paper around and using regulations to feather their nests. Some of these bastards like Thain should be in jail. I mean, I want them carted out of their houses, doing the perp walk at 3 a.m.” Will Wilkinson, a libertarian columnist for The Week magazine, worries about the hazards of Obama’s policy, but doesn’t consider Rand’s book a good handbook for resistance. “The book is a critique of the corporatist economy,” he said on Thursday. “I don’t see why Rand lovers would defend financial executives.”

http://washingtonindependent.com/32772/battling-obama-by-going-galt

[henkster]

Congress should declare the CDS void and unenforceable as a matter of public policy. Leave the last one holding the bag the sucker in what was always a sucker’s game. It’s mostly spec money that never actually existed anyway.

[ding_dong_daddy_from_dumas]

Has AIG ever disclosed where it has spent the bailout money it has already received?

Is the US government going to keep giving AIG billions every month for 1 year? 10 years? Forever?

How do you know that foreign firms and governments have not, and will not continue to dump new toxic assets into AIG?

[dennisw]

I lay part of the blame for the systemic failure with the well-meaning risk avoidance taken by many companies that lead them to only accepting risks that could be insured, and ending up having AIG be the underwriter.

AIG became the risk nexus that itself was vulnerable to the rug being pulled out from under them by mark to market and FASB Rule 157. When coupled with the SEC’s elimination of the Uptick Rule, the collapse of asset values became a self-sustaining chain reaction downward.

BTW: the SEC still has not restored the Uptick Rule, and FASB is just this week reconsidering Rule 157. Each rule change was (again) only well-intentioned by learned committees of well-credentialed people, but each rule worked to make the collapse possible. And look at how reluctant each agency is to accepting that

Your mistake is to consider this all an intellectual exercise with no impact on the greater society
But billions were made and taken home. Joe Cassano made $280 million in 8 years
Stan O'Neal ruined Merrill Lynch and his reward was a $160 million severance package

My rule is cui bono
Those who made the most money are the ones I blame the most
They are not idiots and they knew the risk calculations in the derivatives were very fragile and based on phony assumptions. In some cases it was ever rising real estate prices

I would throw the largest profiteers in prison and strip them of ill gotten gain. 
I have zero sympathy for pirates who crashed our financial system

[JerseyHighlander]

The FASB Rule 157 was derided from the earliest days of it’s creation,
http://paul.kedrosky.com/archives/2007/11/13/credit_markets_1.html

We’re all Minskyviks now.

http://www.levy.org/pubs/ppb_92.pdf

Otherwise you’re post is spot on, maybe this will save the economics field through rebirth. If not there won’t be much left to rebuild with in the coming years.