Commentary: AIG ‘Profits’ an Insult to the Concept

By James Saft | December 13, 2012

  • December 13, 2012 at 1:31 pm
    Dave says:
    Hot debate. What do you think?
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    Excellent article. Could not have stated it better myself. AIG should have been allowed to fail, all those banks should have taken a haircut, with some failing and efficient markets should have allocated scarce resources and capital rather than political hacks in Washington.

    • December 13, 2012 at 1:36 pm
      Chuck says:
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      The failure of AIG would have prolonged the length and severity of US recession

      • December 13, 2012 at 5:32 pm
        Dave says:
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        We really don’t know that. Sometimes letting a free market function freely clears out bad businesses and bad business practices allowing better businesses and better business practices to help shoot us out of a recession.

  • December 13, 2012 at 1:32 pm
    Chuck says:
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    This article is too negative. The bailout kept US financial institutions stable and the govt. made a profit. Just think if the govt. had made a loss. Would there also be complaining? Yes we complain both ways. Even with this good news, all we can seem to do like some congressmen is complain about some company trip that cost $400,000 or complain that someone made a proift. I will pay for the $400,000 trip any day and make a 22B profit Guess what, business is supposed to make a profit and they employ people so they have jobs.

  • December 13, 2012 at 1:38 pm
    Glenn Mavros says:
    Hot debate. What do you think?
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    Anyone with knowledge of fundamental economics knows the AIG bailout was required.
    The global fallout wouldn’t just be banks failing.
    The global financial system as we know it was at the edge of a cliff.

    • December 13, 2012 at 1:50 pm
      Dave says:
      Well-loved. Like or Dislike:
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      Why wasn’t Circuit City bailed out? What about the dozens and dozens of Auto companies prior to GM and Chrysler that weren’t bailed out? What about all the airlines which have gone bust? How come all the banks that have failed over the past several years were not bailed out? I can go on and on. AIG should have been allowed to fail, the banks who bought the bogus credit default swaps should not have gotten 100 cents on the dollar. Capitalism, and allowing bad companies to fail is what made this country great, not Socialism which a 90% government takeover of AIG was.

      • December 14, 2012 at 8:36 am
        Greg says:
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        Dave,
        How can you compare AIG to Circuit City? To make that argument totally invalidates the rest of your statement.
        And you obviously have no idea the far reaching implications of letting a company like AIG fail.
        The takeover needed to happen.
        But with the being said, I think there should have been more oversight on the derivities to begin with.

        • December 14, 2012 at 9:53 am
          Dave says:
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          You’re a capitalist or not. There are hundreds of other insurance companies out there, their insurance operations would have been absorbed nicely by their competitors. Not a single bank deserved 100 cents on the dollar by buying those CDS’s. A haircut of some kind across the board would have allowed enough banks to survive. A number of banks failed anyway and we all survived. In effect, the government reward bad behavior and is encouraging it to happen again. In a vibrant capitalist economy, bad companies fail, good companies prevail and we’re all better off for it. In a Socialist economy, poor companies and industries are subsidized and evereybody is worse off.

  • December 13, 2012 at 1:43 pm
    John Welty says:
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    But has any other public entity that was bailed out by the US Government accomplished the same success story that AIG has? GM has not; Lehmans is out of business, etc…

    • December 13, 2012 at 2:51 pm
      Dave says:
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      AIG’s success is still up in the air. While everybody was watching the collapse and subsequent bailout with great interest, they all took their eye off their “crown jewel” their P&C operations. The P&C operations which had to add several billions to reserves in 2009 and 2010 due to past underwriting indiscretions and bad reserving practices. I haven’t seen a significant improvement in underwriting and pricing practices over there that led to that need for increases in reserves by several billion in each year of 2009 and 2010, and I get the sense that Benmosche (a Life and Health guy) has no idea of what he has with the P&C operations. Let’s see if they survive till next hard market. A hard market which probably needs to be instituted by the failure of a major P&C player. Wonder who that might be?

      • December 18, 2012 at 3:51 pm
        RPB says:
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        Dave:

        AIG added to reserves to strengthen them to take into account the increase in the legal costs associated with the claims, while other companies were writing down reserves to prop up their shortcomings in the underwriting side. As respects the rest of the market absorbing AIG insurance companies, there are no other markets even combined that could have pulled that off let alone think that they would have been a fit for the types of business AIG writes at the correct premium levels.

        I knwo you are a very intelligent individual and your past comments on the various insurance topics have always been well thought out and concise, however I must say on the AIG topic you really do seem to have personal vendetta against AIG as does the autghor of this article, who by the way has never spent a day in the acatual finanical world trenches, just writes about it from the bleachers…

        • December 21, 2012 at 4:41 pm
          J.S. says:
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          Keep drinking the kool-aid RPB, keep drinking the kool-aid.

          AIG has broken rules and laws for decades. If you have been following the industry press over the past decades, you have seen story after story about bid-rigging, false accounting, fraud, etc.

          Then, after helping destroy the world economy with one of those insurance products sold only by AIG (backing the value of credit default swaps), AIG received both a bailout to the tune of over $100 billion dollars and was given major tax breaks, thus giving them a huge competitive advantage over competitors. That is how they have recovered to this point.

          And even after all this, the arrogance remains. You spout off about how no other markets, even combined could have absorbed the AIG business because only AIG has the knowledge. What a load of BS.

          I’m sorry, AIG has been a corrupt, arrogant company that survives only because of the magnitude of its incompetence. If it had only been $50 billion, the bailout would not have been necessary and the rest of the honest competitors would not have to continue to put up with you.

  • December 13, 2012 at 1:57 pm
    Jack says:
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    If we didn’t bailout AIG, here is what would likely have happened:

    - Insurance market immediately hardens
    - Goldman Sachs would have taken a huge haircut and at a minimum lost their clout in the marketplace, if they were able to survive
    - Numerous European banks fail – or EUROPE bails them out

    We were already bailing out U.S banks, so they would have survived regardless. All that would have been different is we would have had bigger bonuses (or a bonus) w/ AIG exiting the market.

  • December 13, 2012 at 2:38 pm
    Jack J Maniscalco says:
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    We have already spent millions of dollars passing and imposing various regulations and bankruptcy laws in order to provide a stable process to manage a business’s downturn/failing/extinction or whatever. Bailing out the Auto industry, banks, and AIG created was not unlike the Soprano Family bailing out the sporting goods store in Ramsey. Except, we all pay the vig.

    • December 13, 2012 at 3:47 pm
      reader says:
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      Who’s “we”? Did “we” have any say in the regulations imposed on small businesses and industry? Did “we” have a say in the bail-outs?

  • December 13, 2012 at 3:10 pm
    Marc says:
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    As repugnant as bailing out AIG was, the alternative would have been worse: Years of insureds trying to collect on losses and return premiums. Every state guarantee fund grappling with huge numbers of claims and assesing responsible companies. (Except for W.C., guarantee funds cap losses). Plaintiff attorneys dancing in the streets. Thousands of employees losing their jobs. It would have been a disaster.

    • December 13, 2012 at 3:30 pm
      reader says:
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      You make it sound like AIG was just an insurance company. You obviously have no clue about finance. Best you keep your comments to yourself.

  • December 13, 2012 at 3:27 pm
    reader says:
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    Excellent, well executed article.
    Forboding and yet, so valid:
    “In a fiat currency regime, one in which the government can create money at will, banks are essentially creatures of the state”.

  • December 13, 2012 at 4:34 pm
    lee says:
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    So government made a decision to step in and take decisive action when a crisis occurred. Rather novel concept today don’t you think? Someone had the guts to make a decision and move on it. That’s leadership and past decisions are twenty twenty hindsight. Would you rather have “bickering by party lines” and no action? The article brings up some great points, but better to talk about whether profits is the right term to use, then where we might have been with no action. Others?

    • December 13, 2012 at 5:28 pm
      Dave says:
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      Decisive decisions are not necessarily good decisions. I’m a capitalist. Buying 90% of AIG is what a Socialist would do. Do you condone Socialism because the decision was decisive?

      • December 14, 2012 at 12:10 pm
        Libby says:
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        Bush must have been a Socialist…

        • December 14, 2012 at 1:10 pm
          Dave says:
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          Not as much as Obama.

          • December 14, 2012 at 1:49 pm
            Libby says:
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            But he passed the AIG bailout!

  • December 14, 2012 at 12:12 pm
    Libby says:
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    I think this article was written by a genius. He is not so much advocating AIG’s demise, but pointing out the inherent conflict of interest in the government bailout of the financial industry. It is so true. And it has helped create the monster that is Wall Street. We need smaller banks, not bigger banks. Smaller government, not bigger government.

    • December 17, 2012 at 12:35 pm
      An actuary says:
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      I’d like to agree with the last two sentences, but I’m afraid that globalization is pulling things in the other direction whether we like it or not.

  • December 14, 2012 at 12:41 pm
    Jared says:
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    The author clearly understands Austrian economics. Out industry is the most capitalistic in the world – we are also going to be the only financial industry with any assets when the treasury defaults. That probably means we will be a target.

    Thanks for stating the reality of the situation!



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