AIG's Latest Bailout Calls for $30 Billion Mor

[Hal3]

AIG's Latest Bailout Calls for $30 Billion More

American International Group will receive up to $30 billion more in aid in a revamped bailout, according to reports. The latest government rescue of AIG since September is intended to support the insurer before it announces a record $60 billion loss Monday.

AIG's Latest Bailout Calls for $30 Billion More - Financials * US * News * Story - CNBC.com

How does this happen?

Who is in the room?

Who are these people agreeing to give AIG $30 Billion?

Is anyone involved elected?

If not, why not?

If they are, who are they?

Where is there a transcript of the proceedings?

They get $30 Billion and the taxpayers get, .... what?

 

[Htown Harry]

I don't have the answers...but this was the clearest explanation of "why" I could find in scanning a dozen articles:

AIG failure would still be disastrous for global mkts | Reuters "The government really does not have the option of letting AIG totally blow up," said Robert Haines, senior insurance analyst at CreditSights, AIG's foray into the roughly $28.5 trillion credit default swap market left it heavily exposed to losses on toxic mortgage assets that it had guaranteed against default.

AIG, through a financial products unit, sold more than $450 billion of protection on securities to U.S. and European banks. With government support, some of those derivatives have been unwound, but the company still has about $300 billion of this exposure, according to Credit Sights.

Haines said that European banks in particular, counterparties on many of AIG's outstanding derivative contracts, "would be hammered if the U.S. walked away."

Donn Vickrey, an analyst with Gradient Analytics, who has closely followed the financial deterioration at AIG said while "European banks are about two-third of the problem ... it would be a domino effect across the globe.
​

Well, I'm certainly against domino world-wide bank collapses...But why haven't the feds and AIG made more progress in unwinding AIG's CDS positions

 

[Hal3]

$28.5 trillion credit default swap market

But why haven't the feds and AIG made more progress in unwinding AIG's CDS positions

The current GDP for the entire United States is 11.6 Trillion in FY 2000 dollars according to the Bureau of Economic Analysis.

BEA National Economic Accounts

The 28.5 Trillion of credit default swaps is thus "worth" roughly three times the value of all goods and services produced by the entire United States for three years according to the banks that hold them.

In fact, they were "created" by a completely unregulated den of thieves.

Many of these "derivatives" were printed up by shell corporations in the Guernsey Islands - England's equivalent of the Caymen Islands.

They were worthless from day one but they were slipped into the financial markets at enormous profit to their creators. That is why there is so much of them. It is like counterfeiting 100 million dollar bills only completely "legal".

When you read about "hedge fund managers" making 100's of millions of dollars per year in personal income where did you think that money came from? A lot of it came from printing and selling, and re-selling, credit default derivatives.

Obviously, at three times the GDP of the entire United States (ands that is only the iceberg that we know of) THERE IS NO WAY WE CAN BAIL OUT THE WHOLE MESS.

So. The den of thieves is going to bankrupt the next six generations of the United States on the way to the New World Order.

But what do I know? I'm just one of those nut-job conspiracy theorists.

 

[samclem]

I don't have the answers...but this was the clearest explanation of "why" I could find in scanning a dozen articles:

AIG failure would still be disastrous for global mkts | Reuters "The government really does not have the option of letting AIG totally blow up," said Robert Haines, senior insurance analyst at CreditSights, AIG's foray into the roughly $28.5 trillion credit default swap market left it heavily exposed to losses on toxic mortgage assets that it had guaranteed against default.

Haines said that European banks in particular, counterparties on many of AIG's outstanding derivative contracts, "would be hammered if the U.S. walked away."​

AIG got into the CDS business on its own. The European banks that made deals with CDS made these deals with a private company, not the US Government. The Government has no legal or moral obligation to take our money to bail them out.

If we decide it is in our national interest to help out European banks that made ill-advised business transactions with a US company, then the USG should deal directly with the European governments we are worried about upsetting. That way, the transactions are between the parties with the money and vested interests--and the US government gets proper credit and compensation for orchestrating the assistance. Pumping $30 billion more into AIG so they can continue this charade of being a solvent company is a continuing waste of precious resources. The US, in the long run, will have more credibility if it is seen as respecting contract law and private property. Stopping this craziness also puts us on firmer footing when we urge other national governments not to subsidize their private industry and to respect the rules of the free marketplace.

We are undoing years of hard-won reforms with our present foolishness.

 

[Hal3]

Wasn't Hank Paulson's firm a big investor in AIG?
We are just bailing out his cronies.
"The US Government" to which you refer is really just a helpless pawn in this operation.

 

[jug]

AIG was a healthy viable holding company of insurers. A little piggy subsidiary based in London essentially took all of this equity and put it on the table in Vegas by selling Swaps, a buzz word for insurance, on the performance and viability of the securitirzed mortgages. This is the most boiled down explanation.

They essentially sold insurance on something that was destined to lose. It's like collecting half a billion dollars in premium money on houses concentrated in Miami when you know for sure that a huge force 5 hurricane is going to strike 2 million homes and knock them over like matchsticks causing billions in total losses.

The little subsidiary did not have the capital for sure to pay the non-performance of these securities, so the massive losses penetrate upward into the mothership, AIG, an example of the follies of a flea killing it's host, an otherwise robust elephant.

That is what happened in layman's terms.

jug

 

[jug]

Oh, I forgot and am probably echoing Samclems explanation.

By giving AIG Billions, we are essentially helping to pay off the losses to the "policyholders" in the wake of the hurricane since AIG probably could not liquidate or liquidate fast enough to pay this humungous bill.

And yes, we are respecting contract law, its just another way of our government paying for those who dabbled in mortgages that were doomed to fail, no different than insuring every home on the shoreline.

It's a prime example of girls/capitalism gone wild. As much as I love capitalism, ran a vending business while in college, this is over the top, and something the blowhard, Rush-in-Limbo seems to overlook in his rants fueled by the effects of an oxycodone induced state of omnipotence.

Doesn't anyone see the man is mad just by the way he rants on?

To be quite honest, these yahoos who wrote these policies, swaps, were taking the oxy like Rush in their frenzy to rake in the premium monies.

Jug,
Say no to drugs

 

[ERD50]

Also no answers, but I came across this blood-pressure raiser:

ABC News: AIG Price Tag: $1,400 Per Taxpayer Family

The government's newly overhauled rescue package for AIG is $162.5 billion, .... -- and the result is $1,455.97 (per household). That's nearly double the maximum tax benefit U.S. couples will receive under the federal stimulus package approved last month.

In terms of sheer size, the AIG bailout may be more comparable to another bailout of sorts -- the Marshall Plan, the U.S.-funded program that helped rebuild Western European countries following the devastation of World War II. When adjusted for inflation,.... the United States spent $115.3 billion, about $47 billion less than the price tag of the AIG rescue.

And that is just the AIG portion of the bailout!!!!

"There's a logic to it, and we probably want to do much of what they're doing," he said.

Baker said the government hasn't done enough to explain, however, how it will pay AIG's creditors. ....


"It's a massive expenditure of taxpayer dollars," he said, "with no accountability."

Oh great, just what we need. More (of our and our kid's) money thrown around w/o accountability.

SPY down another 3% today, as I type.... I think we need a "group version" of Dawg's head-bang-brick-wall emoticon

-ERD50

 

[Hal3]

And yes, we are respecting contract law,

No. We are not.

The government may have insured some of these mortgages but they did not insure the value of derivatives.

Many of the purchaser of these derivatives, most of the purchasers actually, did not have what is called an "insurable interest". That is, thay did not own what was "insured". They were just buying and selling the insurance policies.
The shell companies writing the insurance did not have the assets to backup the policies. And before anyone says that the magnitude of the defaults could not have been predicted it doesn't change the fact that these were shell companies that never had the assets to pay off anything.

So. It works like this:

A poor bum on the street winds up dead.

100 people show up with $1,000,000 life insurance policies naming them as the beneficiary. They are unrelated to the bum in any way. The policies were underwritten by a bankrupt shell corporation that has never been more than an address in the Cayman islands. They paid $10,000 apiece for these policies. The owner of the shell corp made $1,000,000 in salary and bonus the year it wrote the policies and just before it went bankrupt.

Should the taxpayers buy up these "toxic asset" insurance policies from their holder for the total face value of $100,000,000?

Obviously not.
Obviously not.
Obviously not.

This is beyond insanity.

Oh, I forgot and am probably echoing Samclems explanation.

By giving AIG Billions, we are essentially helping to pay off the losses to the "policyholders" in the wake of the hurricane since AIG probably could not liquidate or liquidate fast enough to pay this humungous bill.

And yes, we are respecting contract law, its just another way of our government paying for those who dabbled in mortgages that were doomed to fail, no different than insuring every home on the shoreline.

It's a prime example of girls/capitalism gone wild. As much as I love capitalism, ran a vending business while in college, this is over the top, and something the blowhard, Rush-in-Limbo seems to overlook in his rants fueled by the effects of an oxycodone induced state of omnipotence.

Doesn't anyone see the man is mad just by the way he rants on?

To be quite honest, these yahoos who wrote these policies, swaps, were taking the oxy like Rush in their frenzy to rake in the premium monies.

Jug,
Say no to drugs

 

[samclem]

In terms of sheer size, the AIG bailout may be more comparable to another bailout of sorts -- the Marshall Plan, the U.S.-funded program that helped rebuild Western European countries following the devastation of World War II. When adjusted for inflation,.... the United States spent $115.3 billion, about $47 billion less than the price tag of the AIG rescue.

That really is amazing.

From this WSJ article, in part:

Since September 16 when the government began its serial interventions into AIG, not one of these deals has been approved by AIG shareholders, and not one has been fully explained to taxpayers. . .
What we know is that since the end of last August, AIG has sent more than $20 billion in collateral to trading counterparties, but neither the Fed nor AIG will name the recipients. . .
Readers will recall that some large AIG investors, including former CEO Hank Greenberg, believed the firm would have been better off in Chapter 11 bankruptcy compared to the onerous terms of the September rescue. Mr. Greenberg and others urged a plan that invited private capital to save AIG. We are instead witnessing what happens to a once-great firm when it is run by the federal government. Instead of an open-ended commitment to pour money as needed into AIG, the Fed and Treasury should be offering taxpayers an exit strategy.
"

This bailout was a tremendous over-reaction by the government, but the thing is on autopilot. It is easier to keep wasting billions of dollars than to just wrap it up gracefully and move on.

I was under the impression that sunshine laws and various regulations required that government activities be made public. Are the machinations going on with the bailout classified? Can a regular taxpayer file a Freedom of Information request to find out where and how our billions are being spent.

 

[Independent]

So. It works like this:

A poor bum on the street winds up dead.

100 people show up with $1,000,000 life insurance policies naming them as the beneficiary. They are unrelated to the bum in any way. The policies were underwritten by a bankrupt shell corporation that has never been more than an address in the Cayman islands. They paid $10,000 apiece for these policies. The owner of the shell corp made $1,000,000 in salary and bonus the year it wrote the policies and just before it went bankrupt.

Should the taxpayers buy up these "toxic asset" insurance policies from their holder for the total face value of $100,000,000?

Obviously not.

Nice analogy. "obviously not" is the right answer from a moral and legal perspective.

I'll take it one step further. The "smart people" are telling us that if AIG goes bankrupt we'll have a "complete meltdown of the financial system". Maybe that's true, but I can't believe that every penny they owe the speculators is critical to the system. By now, the gov't should have identified AIG's creditors and figured out which (if any) we have to save. So, at this point, we should let AIG go to bankruptcy court, and make offers to the specific creditors that we feel we have to help (not because they have a legal or moral claim on tax dollars, just because if they fail we get hurt too badly). Presumably, this is not all the creditors, and we wouldn't pay 100 cents on the dollar, and we'd get some ownership stake in the creditor in exchange.

I have to believe there is some middle ground between "do nothing" and "give every creditor every penney that AIG promised". I don't think they're trying hard enough.

 

[Hal3]

We are all Bozo's on this bus.

By now, the gov't should have identified AIG's creditors and figured out which (if any) we have to save.

It is my conviction that Hank saved his cronies first. Goldman Sachs principals and clients. That is why all the secrecy.

Presumably, he may be getting a nice bottle of Scotch some day.

 

[Independent]

It is my conviction that Hank saved his cronies first. Goldman Sachs principals and clients. That is why all the secrecy.

Presumably, he may be getting a nice bottle of Scotch some day.

I'm not sure what "saved .... first" means. My concern is that he saved everybody. Maybe he was particulary concerned about GS, but they don't seem to be getting special treatment in the AIG case.

Oddly, this is a case where I'd rather have them pick out the winners and losers, because nobody actually "deserves" anything, and I'd like to keep the cost down.

 

[jug]

I'm not sure what "saved .... first" means. My concern is that he saved everybody. Maybe he was particulary concerned about GS, but they don't seem to be getting special treatment in the AIG case.

Oddly, this is a case where I'd rather have them pick out the winners and losers, because nobody actually "deserves" anything, and I'd like to keep the cost down.

I think there is a bit of confusion here. AIG's main obligation is to it's primary business, it's policyholders. Buying life insurance, annuities, etc from an insurer is akin to putting money in a bank, FDIC insured.

The dabbling in selling insurance, SWAPS, for mort-back-securities, is a financial product. The financial product was sold by a subidiary of AIG, but was in no way near capitalized to cover major losses. Thus, the losses came in droves, as the MBS's CDO's defaulted/underperformed.

The losses involved were contracts that have to be paid, so in order to pay them, AIG has to dig very deep into the deposits/annuities/life products held by the sister companies.

The big question is, are the losses so big that it would wipe out AIG?

What would happen to the billions in deposits/annuity contracts/life contract with cash value? Do we let them go down the tubes? NY has a guarantee fund, but then you would heavily dig into the assets of the other insurers.

Do we tell AIG not to pay the swap contracts and let them sink?
Do we pay the swap contracts and let the policy holders of AIG sink?
Do we let AIG decide, give them no money and let them screw everyone since they can't pay both the swap contracts and save the policyholders at the same time?

I would say the primary concern would be the policyholders, who are akin to people who deposit money in banks.
You have to look at AIG as a huge bank, but was doing the right thing in selling insurance, but got bitten by the dabbling of some idiot sub in London who put the whole company on the roulette table.


What to do?

 

[Hal3]

Top U.S., European Banks Got $50 Billion in AIG Aid

It is my conviction that Hank saved his cronies first. Goldman Sachs principals and clients. That is why all the secrecy.

Presumably, he may be getting a nice bottle of Scotch some day.

Well .... here ya go ....


Wall Street Journal:

The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.


AIG Aid: Top U.S. And European Banks Got $50 Billion From Company's Bailout

 

[jug]

Well .... here ya go ....


Wall Street Journal:


Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.


AIG Aid: Top U.S. And European Banks Got $50 Billion From Company's Bailout

So essentially Goldman and boys bought swaps from AIG to insurer their follies with the failing MBS and CDO's. So we are essentially paying for these swaps and bad bets.

300 million suckers, born everyday. When do we hang Paulson in effigy?

The problem is that the average bud chucking American does not even comprehend this, thank goodness for the wall street den of thieves
jug

 

[Hal3]

The main problem for parasites is that they tend to multiply and eventually kill the host. Otherwise, it's a great gig while it lasts!

 

[Independent]

I think there is a bit of confusion here. AIG's main obligation is to it's primary business, it's policyholders. Buying life insurance, annuities, etc from an insurer is akin to putting money in a bank, FDIC insured.

The dabbling in selling insurance, SWAPS, for mort-back-securities, is a financial product. The financial product was sold by a subidiary of AIG, but was in no way near capitalized to cover major losses. Thus, the losses came in droves, as the MBS's CDO's defaulted/underperformed.

The losses involved were contracts that have to be paid, so in order to pay them, AIG has to dig very deep into the deposits/annuities/life products held by the sister companies.

The big question is, are the losses so big that it would wipe out AIG?

What would happen to the billions in deposits/annuity contracts/life contract with cash value? Do we let them go down the tubes? NY has a guarantee fund, but then you would heavily dig into the assets of the other insurers.

Do we tell AIG not to pay the swap contracts and let them sink?
Do we pay the swap contracts and let the policy holders of AIG sink?
Do we let AIG decide, give them no money and let them screw everyone since they can't pay both the swap contracts and save the policyholders at the same time?

I would say the primary concern would be the policyholders, who are akin to people who deposit money in banks.
You have to look at AIG as a huge bank, but was doing the right thing in selling insurance, but got bitten by the dabbling of some idiot sub in London who put the whole company on the roulette table.


What to do?

I think your split is correct. I'd "wall off" the insurance companies from the finance company. I expect that the (regulated) insurance companies are doing fine and their policyholders aren't at risk. There's no question whether the finance company is under water. The question is just which of the finance company's creditors you want to bail out.

 

[ERD50]

The main problem for parasites is that they tend to multiply and eventually kill the host. Otherwise, it's a great gig while it lasts!

That's not technically correct. Parasites *need* the host, it does not serve their purpose t kill it:

Parasitism is a type of symbiotic relationship between two different organisms

.....

Parasitism is differentiated from parasitoidism, a relationship in which the host is always killed by the parasite

But I get your point, I just thought it was fun for me to learn a new word today. I can't wait for an opportunity to call someone a pompous parasitoid!

-ERD50

 

[jug]

I think your split is correct. I'd "wall off" the insurance companies from the finance company. I expect that the (regulated) insurance companies are doing fine and their policyholders aren't at risk. There's no question whether the finance company is under water. The question is just which of the finance company's creditors you want to bail out.

Ok, if you wall off the insurance products, then you have the Swap contracts that cannot be paid by the little AIG sub that sold them. These contracts are with large banks (European, American and Asian), investment thieves (goldman and the boys), hedge funds, pension funds, etc.

To let them go, is essentially to break contract law. A big problem, since it may be the right thing to do for the people, but cheapens the concept of contracts going forward. It sets a precedent that will haunt international commerce for decades, with no trust. Sort of like investing in a country, and taking a big chance that your factory will be nationalized when the locals feel they need your facilities when times get tough.

Our whole commerce system is based on contracts and trust.

You see the problem they have, and this cannot even be politicized, since it is a business problem, with the ingredient of trust most important.

What to do?
jug

 

[samclem]

To let them go, is essentially to break contract law.

Can you explain this a little more? As I see it, the US government doesn't have to bail out AIG--the insurance business and their finance bets are their own. They took a stupid risk (it doesn't matter that it was a a sub-group or even one guy--they would surely have kept he money if they'd "won" and it was their job to oversee their business). If the business fails, it fails. It seems to me that this is the best way to uphold contract law and to re-afirm the responsibility of businesses to check their greed and perform due diligence.
Then, as a separate issue, once AIG has failed or somehow survived, the government can look around at the harmed parties and decide if any of them deserve compensation from the government. Not through AIG, but directly. I'd say the policyholders come first--and the government may even have some responsibility to provide some restitution if the government's oversight of AIG's (government-regulated) insurance business was faulty. Similarly, the government might choose to provide some partial restitution to other parties (foreign national banks?) as a political gesture ("you got burned, you shouldn't bet with your citizen's money, you knew these contracts were not guaranteed by the US. We owe you nothing. However, we realize that you deal with US companies because of their transparency and because of the stability of our financial system, and we want to maintain that goodwill. Here is a check for 25% of your losses--take it or leave it, and agree to release the remnants of AIG from further claims if you take it. You wouldn't get an offer this generous from any other government on earth.")
Most stockholders and bondholders--tough luck. That's how we maintain trust in the system.

 

[jug]

I think your split is correct. I'd "wall off" the insurance companies from the finance company. I expect that the (regulated) insurance companies are doing fine and their policyholders aren't at risk. There's no question whether the finance company is under water. The question is just which of the finance company's creditors you want to bail out.

Ok, just another thought on this.

AIG is an insurance mammoth. It's tentacles go all over the world, and nothing runs or works without insurance, it is essential.

If you were to break contract with those who bought swaps, the lawyers would come out of their caves, and do whatever they can to freeze AIG assets. AIG would be cash frozen. Claims would go unpaid. Panic would set in big time.

I believe this would preclude AIG commercial insurers from operating normally. Freight would not leave harbor , planes would not fly, businesses all around the globe would come to a halt. Nothing in business moves without someone to share the risk. AIG's reinsurance arm would come to a halt, thus affecting other insurers who may very well pull back from the market. Their frozen position would spread throught the insurance industry.

Yes there are other insurers, but to transfer the capacity of countless policies from AIG to carriers would stall things, there arent enough people just to do the paper work, everything would simply come to a halt.
The amount owed by AIG for swaps is unknown, but it is probably very significant. AIG would essentially take over the paper and pay out the cash on face value of paper. Then they have to sort out the paper to find what the real loss is. Another thing that could take years and years.

What I just explained would not be told to the public so as not to set off a panic, as commercial insurance, or lack thereof on a massive scale would only make things worse.

How do I know this, I was a bean counter for the State working with Insurance for over 25 years. I also saw how the insurance industry was set up to work with derivative products, something unheard of before, but that is another story.

jug

 

[Hal3]

To let them go, is essentially to break contract law.

To let them go, is essentially to break contract law.

I think the clarification here is that "to let them go" is to break the contract. That is not breaking the law. Many contracts anticipate that they will not be fulfilled by one party or the other and spell out the consequences. Breaking a contract is a civil matter. It is not "breaking the law" as in a criminal matter. It is also entirely a matter among the parties to the contract. If I have a contract to pay you $1,000 to mow my yard and after you mow my yard I don't pay you, you are not entitled under the law to go to a third party and expect them to pay you on my behalf. A court may order me to pay you but if I can't or won't pay the court won't pay you for me.

Same with AIG.

You and I have no obligation to make third parties whole in their business contracts.

 

[jug]

I think the clarification here is that "to let them go" is to break the contract. That is not breaking the law. Many contracts anticipate that they will not be fulfilled by one party or the other and spell out the consequences. Breaking a contract is a civil matter. It is not "breaking the law" as in a criminal matter. It is also entirely a matter among the parties to the contract. If I have a contract to pay you $1,000 to mow my yard and after you mow my yard I don't pay you, you are not entitled under the law to go to a third party and expect them to pay you on my behalf. A court may order me to pay you but if I can't or won't pay the court won't pay you for me.

Same with AIG.

You and I have no obligation to make third parties whole in their business contracts.

I believe what is going on behind the scenes is very serious business going into the many billions of dollars. Lawyers for the contract holder, banks, hedge funds, other insurer, big time players are ready at the gun to go to court and freeze billions of assets thus freezing massive insurance operations. This is all behind the scenes.

Treasury is simply paying AIG the billions in order to pay these third parties in the belief that the freezing of AIG insurance operations would have a devastating effect on whatever the hell is insured big time by AIG.

The fight here is for the assets of AIG, those who bought Mort backed Secs insured them and they want their money, big time. That is where this "bailout" cash is going, Bernanke said it, but won't name the beneficiaries for fear of angering even more the American people. It's all becoming very clear what is goiing on here.

It was layed on the table behind closed doors that operations the ability to pay claims by AIG would be frozen. This would keep many airlines from flying, many ships from not going to sea, much trade would grind to a halt, making things worse.

Jug

 

[Hal3]

US, Europe Banks Get Cash From AIG Rescue: Report

US, Europe Banks Get Cash From AIG Rescue: Report - Financials * Europe * News * Story - CNBC.com

This is a Medusa-like swindle.

You point to one head and another rises up behind you.

First we were told the financial structure of the planet collapsed because a house-keeper in San Diego making $25,000 per year was given a $500,000 mortgage. End of story.

Then it was the derivative market.

Then it was the cost of energy.

The it was because no one was using energy.

Now it's because AIG would not be able to insure the airlines.

It's the old shell and pea game.

Meanwhile the American people are being reduced to impoverished wage-slaves while billions goes to parties that Bernanke won't disclose.

I am puzzled by your position that this all seems perfectly logical.

?