Posts Tagged ‘aig’

Geithner 3.0: What a difference a day makes

24 March 2009

This is the most sensible thing I’ve heard from him yet — a proposal for FDIC-type powers for the government to temporarily take over too-big-but-failing-anyway financial institutions like AIG, clean house, and sell off their remaining assets.   I once thought the FDIC already had those powers, but apparently that’s so only for regular commercial banks, not bank holding companies or other financial Goliaths.   (FDIC Chairperson Sheila Bair explains it here.)

The new proposal doesn’t necessarily conflict with anything in yesterday’s plan to subsidize the worst financial institutions by overpaying for their worst assets, but it does suggest that the Obama Administration really does have plans to regulate them and is not kidding itself (Pollyannish recent rhetoric  to the contrary) that all of them are fundamentally sound.

(more…)

Advertisements

Aieeee, AIG! (Part 2)

18 March 2009

Excellent-sounding suggestion about how to stop those abonimable AIG bonuses, from Bill Black, Tom Ferguson, Rob Johnson, and Walker Todd (The Huffington Post, 16 March 2009).  Even if it doesn’t succeed in stopping the bonuses, their suggestion to break off AIG’s toxic Financial Products Division (like a hedge fund attached to an insurance company, as Ben Bernanke described it) from AIG’s main business, and then treat the Financial Products Division like the bankrupt entity it is, is very appealing.

Dean Baker makes much the same point:  bankrupt companies don’t get to pay bonuses.

The NYT has another sensible editorial about AIG and who it’s been paying off with the $170 billion in bailouts it’s received so far.   Under the bailout, the company has been paying off many credit default swap (CDS) holders in full, which is a great way to burn through hundreds of billions of dollars with lightning speed.   And now we know that a good chunk of those billions went to CDS creditors like Goldman Sachs who, like AIG, are wards of the state.  (To be fair, a substantial but smaller amount of CDS payouts went to state governments.)  The only relief I can think of is Herb Stein’s old line:  the good thing about something that can’t go on indefinitely is that it won’t.

(more…)

Aieeee, AIG! (Part 1)

15 March 2009

$61 billion in fourth-quarter losses, tens of million in new bonuses, mostly to people in the most toxic financial products division on Earth, namely their Financial Products division.

And the bailouts just keep on comin’.   Word is that the bonuses will be restrained in the future, but why not in the present, when AIG has already received $170 billion in government funds?  AIG’s line is that the bonuses were contractual obligations made before the company’s implosion, but aren’t bonsuses supposed to be paid out of company profits?  AIG has gone from hosing its shareholders to hosing the taxpayers.  And if the government has a plan for dismantling this atomic bomb of a company, it’s doing everything in its power to suggest otherwise.   Seems that “Welfare Cadillac” was written about forty years too early:

UPDATE, 16 March 2009:  Sunday’s NYT had a sensible editorial on the matter.   News of the backlash and the identities of AIG’s counterparties was all over the wires on Monday.  Warren Buffett’s warning that credit derivatives were financial weapons of mass destruction looks truer than ever — AIG’s bottomless obligations now seem to be married to the federal government’s bottomless pocket.   While the systemic risk from letting AIG fail was huge (and no doubt still is), is it really a worse risk than all-out banana-republic bankruptcy for the U.S. government?

UPDATE, 17 March 2009: Actually a week old, but James Hamilton’s AIG analysis and recommendations on Econobrowser are worth pondering, as is the long comments thread.

The agony of AIG: Time to educate myself

2 March 2009

“Zombie insurance company” doesn’t exactly roll off the tongue, does it?  We shall work on a suitable epithet.

As usual, Joe Nocera of the NYT offers pith and insight into the AIG mess.

And Yves Smith at Naked Capitalism offers some sophisticated outrage.  I’m a big believer in the concept of the enlightened rant, which may be why NakedCapitalism.com is among my daily visits.

So far, my summary understanding of the AIG mess is something like this:  The company diligently acquired a AAA credit rating and then recklessly exploited it by selling “naked” (unhedged, no offsetting position) credit-default-swaps to anyone and everyone.  Unlike the failing banks, AIG wasn’t directly involved in the subprime securities business, but their problems became AIG’s problems when many of them began defaulting on their obligations — obligations which were insured by . . .  AIG.  So now AIG also has obligations that no honest financial institution can pay.  And because AIG is one of the world’s largest corporations, it accounts for huge chunks of many institutions’ stock and bond/loan portfolios.  “Too big to fail,” blah blah blah.

To be updated with more links . . .