anyuser
04-08-2009, 10:21 AM
After $182 billion taxpayer rescue, is AIG on the verge of collapse? (http://dprogram.net/2009/08/01/after-182-billion-taxpayer-rescue-is-aig-on-the-verge-of-collapse/)
You may remember American International Group (AIG). The U.S. government gave it $182 billion of taxpayer money last fall in exchange for a 78 percent stake. Of that money, $165 million went for bonuses to a handful of people in its Financial Products Group (FPG), which sold Credit Default Swaps (CDSs) on which AIG lacked the capital to make good. And $200 million more is slated for those good folks in 2009.
Another $12.9 billion of our taxpayer money went to Goldman Sachs Group (GS) so AIG could pay Goldman 100 cents on the dollar for its CDSs. Hank Paulson wanted to keep the names of Goldman and the other recipients secret — since so many of them were foreign banks, but the information leaked out in March 2009 after Paulson left office.
Now, thanks to some solid reporting in The New York Times, it looks like the rot at AIG is not limited to FPG. While AIG officials have claimed that its problems were isolated to FPG, the reality is that AIG seems to have been running something akin to a shell game of massive proportions. Its shell game version took the form of selling insurance and assigning the resultant risks among its 71 different North American insurance companies.
Thanks to AIG’s regulatory arbitrage — taking advantage of the fact that its 19 state insurance regulators never conduct examinations at the same time — AIG may have been able to shift assets among the companies to fool state regulators. If one its companies did not have enough money set aside as reserves against future claims, AIG could move assets to that reserve-deficient company right before the state insurance examiner moved in. And once that examiner was gone, AIG could in theory shift the extra cash to the next reserves-deficient company.
Cont: After $182 billion taxpayer rescue, is AIG on the verge of collapse? (http://dprogram.net/2009/08/01/after-182-billion-taxpayer-rescue-is-aig-on-the-verge-of-collapse/)
You may remember American International Group (AIG). The U.S. government gave it $182 billion of taxpayer money last fall in exchange for a 78 percent stake. Of that money, $165 million went for bonuses to a handful of people in its Financial Products Group (FPG), which sold Credit Default Swaps (CDSs) on which AIG lacked the capital to make good. And $200 million more is slated for those good folks in 2009.
Another $12.9 billion of our taxpayer money went to Goldman Sachs Group (GS) so AIG could pay Goldman 100 cents on the dollar for its CDSs. Hank Paulson wanted to keep the names of Goldman and the other recipients secret — since so many of them were foreign banks, but the information leaked out in March 2009 after Paulson left office.
Now, thanks to some solid reporting in The New York Times, it looks like the rot at AIG is not limited to FPG. While AIG officials have claimed that its problems were isolated to FPG, the reality is that AIG seems to have been running something akin to a shell game of massive proportions. Its shell game version took the form of selling insurance and assigning the resultant risks among its 71 different North American insurance companies.
Thanks to AIG’s regulatory arbitrage — taking advantage of the fact that its 19 state insurance regulators never conduct examinations at the same time — AIG may have been able to shift assets among the companies to fool state regulators. If one its companies did not have enough money set aside as reserves against future claims, AIG could move assets to that reserve-deficient company right before the state insurance examiner moved in. And once that examiner was gone, AIG could in theory shift the extra cash to the next reserves-deficient company.
Cont: After $182 billion taxpayer rescue, is AIG on the verge of collapse? (http://dprogram.net/2009/08/01/after-182-billion-taxpayer-rescue-is-aig-on-the-verge-of-collapse/)