AIG: Inquiring Minds Want To Know

An extraordinary amount, more than extended to any other institution - even more than Fannie and Freddie (each.)

Even Citibank, which has come to the TARP window twice, has only an asset guarantee, not an operating line of credit of that size. We've also "guaranteed" (or "taken on") tens of billions more in "bad assets" (presumably credit-default swaps, which might be open-ended obligations.)

Now AIG, a company founded in China in 1919, with very strong ties in China, is about to report a $60 billion dollar loss in one quarter and is reported to be seeking even more money - or at least a conversion to common equity - from the federal government.

The endpoint, in fact, could be stretched way out by one special AIG troublemaker: a complex noninsurance operation that nobody thinks can be sold but that instead needs to be wound down in a process apt to be both lengthy and expensive. This albatross is AIG Financial Products FP for short which is housed in a division called Capital Markets. FP was formed 21 years ago to trade over-the-counter derivatives, and it proceeded to ride the great boom in that business. For most of its history, FP gave longtime CEO Hank Greenberg profits on cue, helping him build a great record of earnings growth until this streak was rudely smashed several years ago by earnings restatements that involved practically every comer of the company, FP included.

Worse, even as those humiliations were surfacing (and leading to Greenberg's departure), AIG got deeply involved with mortgage securities that all too soon were identified as toxic. A nutty investment policy at the company's insurers helped create this problem. But the true agent of doom was FP, which wrote close to $80 billion of credit default swaps contracts that insure investors against losing principal and interest on super-senior tranches of collateralized debt obligations (CDOs) that were loaded with mortgage securities, some of them subprime. A financial tsunami then engulfed AIG, which is structurally a holding company the parent of a web of operating insurers. The CDOs fell in value, and credit ratings for the parent company went down with them. This drop in AIG's creditworthiness triggered clauses in the credit default swaps (CDS) that allowed AIG's counterparties to demand collateral, and those calls for cash put the parent in a vise. There you have the internal situation that, in time, shoved AIG into the arms of the government.

A long read,http://www.insurancenewsnet.com/article.asp?a=top_news&id=102152

This article seems way too important to let languish with only 7 replies. The implications are staggering and the questions raised deserve answers.

I have said all along that most Americans have failed to consider that those "American corporations" we are bailing out with American tax dollars are actually international corporations with ties and obligations far beyond our borders. The reason behind the lack of transparency is that they know we will not easily accept the truth about where our money is going.

I found another discussion concerning this article at the Ticker Forum site.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=84510

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.