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How Does One Lose $125 Billion?

Posted by Larry Doyle on February 24, 2009 6:00 AM |

It’s as easy as A-I-G…

While the government has pumped billions of dollars into Freddie, Fannie, the banks, the auto companies, and on and on it goes, the largest single government intervention into a private company centers on AIG. How are our investment dollars doing? Bloomberg.com reported:

“While I anticipated AIG would come back to the government begging for additional taxpayer dollars, I am disturbed that it has happened so soon,” said U.S. Representative Elijah Cummings, the Maryland Democrat who has criticized the insurer’s retention pay program, in a statement today.

The government saved AIG from collapse to prevent losses at banks that did business with the insurer.

“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Fed said in a report in November.

It is expected that AIG may announce a loss of upwards of $60 billion when it reports earnings next week.  In anticipation of that, AIG is expected to request a further injection of capital to stem losses. Where do those losses emanate? CDS, those insurance contracts written by AIG to banks and funds around the world. This intricate web of contracts represents the massive systemic risk that truly is the centerpiece of our global financial problem. American taxpayers are stuck with the tab and will be paying over the next number of years.

Where were the insurance regulators? This derivatives business – housed in AIG Financial Products – developed, initially thrived, and answered ultimately to Maurice “Hank” Greenberg. Hank has a reputation as one of the most ruthless individuals in the world of finance. It is believed by some AIG veterans that under Hank’s watch the books were cooked via a money laundering scheme centered offshore and executed through an office in New Hampshire. What happened?

Former New York Governor Eliot Spitzer forced Greenberg out of AIG but was never able to prosecute him. Why? Well, is there any doubt as to who exacted retribution on Spitzer and literally caught him with his pants down? 

The problems at AIG did not just occur in the last few years. The culture of that organization was developed and dominated by Greenberg. The AIG Founder Wielded Personal Influence in Washington and there is little doubt that those relationships saved him from prosecution for money laundering, tax evasion, and accounting fraud.

AIG stock closed at  .53 today. Greenberg is worth a pittance of his billions, but the American taxpayer is truly stuck with the bill.

To read more: AIG Seeks to Ease Its Bailout Terms

LD






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