In addition, you should mention that when the ratings assigned to the party on the hook for the CDS are downgraded, that party has to post more collateral because the buyer of the CDS is more exposed to non-performance due to default.
In AIG’s case this has become a downward spiral. When AIG’s creit rating was cut on 9/16 (or was it 9/15) they were required to post about 14 billion of additional collateral (i.e. cash) they could not immediately obtain. That was posted by drawing from the government under the “loan” program AIG “voluntarily entered”.
The extra borrowing and the ham-handed way it was presented (first a vote, then no vote; first ownership, then a preferred position with warrants) resulted in more concern about AIG and more credit downgrades–thus the need to borrow more from the government.
Then the general histeria over the credit crunch, more rapid moves by the government against WM and WB and worries that loan portfolios are worse than thought at mid-September, so more default concerns and you guessed, more collateral needed and thus more borrowed from the government.
The government and AIG are in a different relationship today than 45 days ago. The n AIG owned the government 14 billion and AIG had a problem. Today, AIG owns the government more than 90 billion and now the government has a probelm.
Brokette, Bush will be gone soon, Congress will be asked to bail out GM and Ford at the request of Unions and probably more industries before its over Obamas administration will be handing out even more money than Paulson has spent. Any failure of a government controled entity will reflect on Congress and the Governments ability to function, either warranted or not. You are right that Bush and Paulson probably should be blamed for the bailout if it fails, I believe that Congress will bail them out again because, by the time this would happen Bush and Paulson will be gone and the media will not care about bashing them anymore. They will want a new person to blame that they can take down. Just look at the blaming by the biased media the current president has had to deal with. The media is not looking for fairness they look for blood.
Do you think that Liddy can make a decission on his own? or doed he have to call Paulson, Bernaki, or some other governmental entity to get aproval to make a deal for the parts of AIG. I heard the Government hire 2 or 3 companies to handle the sale of AIG’s Assets, Do you think that these 3 entities and the Goverment agencies and Liddy can all agree what to sell and at what price? The best analogy of this situation is trying to purchase real estate on a short sale basis. You make an offer to the bank and 3 months later you get a counter offer but no one knows who made the counter offer or how to get in touch with them. They will have a very difficult time getting this done in a timely fashion.
Greenberg was ousted as CEO by Eliott Spitzer, Greenberg and others hired private investigators and set Spitzer up on the prostitute deal. Greenberg is the largest persosonal shareholder of AIG, roughly 16% of pre government bailout. Now the Government owns 80% of AIG and Greenberg owns 16% of the remaining 20%. Greenberg is very old and a little senile he should just sell what he can and spend his time in Hawaii, but instead he is angry about his demise as CEO and wants to buy some of AIG through his company C.V. Starr & Co. Problem is the CEO of AIG Liddy has to listen to him, not take his advice but listen because Greenberg is the largest shareholder besides the Feds the company has. Thats the nut case in a nut shell.
I think you are correct about the 11% not the 16% I stated as he has sold a good part of his stock recently in an effort to build cash to buy parts of AIG.
Please tell me AIG is not going to default on the loan and we taxpayers aren’t going to be stuck with the $100. plus billion dollar loan we cannot collect.
Loan will not default, The feds now cannot let that happen, that would be such an embarrassment for the congress. I bought some AIG stock for 1.30 quite a few shares. OK, before you fall out of your chair laughing, I dont think I can lose. (remember my partner can print money) now who’s laughing.
Embarrassment for Congress? The media will plaster THAT failure all over the President and his Treasury Secretary. I don’t know what you’re smokin’ but this Congress is teflon.
Main reason assets aren’t moving is that those who would want to buy are cahs short. With credit still being tight they can’t get financing at a rate they can live with.
There are some very qualified buyers thye just need to work out some credit.
It is amazing how much this administration including current members of congress and the senate have screwed up this country.
I’m sure most of us never thought credit could be so hard to come by.
The assesment of Greenberg wanting to get a hold of some of the AIG assets is true. He want to turn C V Starr into another AIG.
Anyone wonder how come C V Star isn’t hurting at all? Look over the past 4 to 6 years of assest that Mr. Greenberg put into C V Starr instead of AIG. It will make your jaw drop.
The only nut case it the one that posted the conspiracy garbage. Spitzer made his own bed. Where do people like you get this garbage Bill? Greenberg spent a lifetime building a business and took pride in it, justified or unjustifed. He owns a portion of it. Why shouldn’t he be concerned conspiracy nut. Where do these people come from?
hank’s only worried about his money. i see where AIG has pretty much burned through the $85B given by our government, as well as the $37B additional thrown in. much to everyone’s surprise, there is no accounting, or controls or record of where all this money has gone. enough already, lets stop pouring more money down a big hole to pay for all the credit swaps AIG sold. nothing is too big to fail, i thought thats why there anti-monopolistic laws in place to prevent such a problem.!
You are nuts. AIG was one of the premier financial companies in the world and almost all of it came after Hank took it over in the 70’s. Then Spitzer, a liar and cheat, runs him out of control. Credit swaps under Greenberg accounted for less than 5% of overall assets and was a controlled investment portion of AIG as soon as Greenberg was forced out it was no longer monitored and became out of control. Look at C.V. Starr and you will know how important Greenberg is to a company. He truly is the Warren Buffet of the World Financial Services. Old he may be but senile he is not!
The reason CV Starr is still doing good is Hank Greenberg. If that dope Spitzer wasn’t so hell bent on making a name for himself, Greenberg would still be in charge of AIG and we would not be in this mess. To think that Greenberg retaliated by setting up Spitzer is obsurd. The only part he may have played was hiring someone to follow Spitzer around to catch him banging the hooker. Greenberg still owns a good chunk of AIG and has a right to comment.
I too don’t understand where the actual money went? Maybe Paula Reynolds could hold a web-seminar and show us a power point on AIG economic dispersion and dispersal. Overnight the $85 Mil is gone?
Did they need it for payroll? What?!? All of their businesses are profitable so what’s the problem, take the bucks from there and grow it back.
If you’re having a problem getting credit, then maybe you shouldn’t be getting credit. I’m not having any problems. I guess it pays to pay your bills and have a great credit score. And lastly, if AIG gets to renegotiate a loan that they agreed to, then my mortgage company and car loan company should listen to me and give me new rates that I want. Isn’t that only fair? I’ll be ticked if they get to renegotiate better rates. To me that’s discrimination and the last I heard illegal in this country.
Large clients have been allowed to re-negotiate loan terms for years. Most lenders would prefer to lower their rate a fraction of a point than take property back and have to carry it on their books.
But now we’re the bank and we have alot of assets, so hey, one more, who cares? We shouldn’t be in this position in the first place. And let’s go one step futher, since our government is now in the private sector, I say we vote for one religion in this country and the government run it.
I’m sure once our new Prez Bama is inaugurated he will just throw some more of our taxpayer’s hard earned cash their way to keep them afloat. AIG is afterall one of the liberal’s charities, oops, I mean entitlement programs, right? Throwing govt money at a problem doesnt make it go away. What happened to letting the consequences of free enterprise work?
And the facts are:
Hank was done-in by a hypocritcal, santimonoius, schwandingling, whor-mongering, lying, crooked “governor”, because Spitzer had questions & charges to pursue, yet knew nothing about the validity of contingent commission arrangements in our industry
Problem was: insytaed of dealing with the S.O.B. Hank decided to challenge the putz
Mistake, because he was the governor
WHO gets hurt if AIG disappears
Everyone in the world. This is BIG and needs to be solved.
Liddy himself said “the mess is solvable” and that he would contruct a smaller, core focused AIG
So do it Ed.
-But if he doesn’t he’ll simply say, “Hey I got here when the share was 2.00…-don’t blame me”
Then, HE’LL walk away with a Fuld-Sullivan-like golden parachute
I would invest if Liddy would get out and let Hank come back. He would not have left the investments where they were until they devastated the company. Over 40 years of profitable quarters? All you insurance “guys” criticize this guy… I think jealousy might be an accurate description? I would put all my money in AIG if Hank came back. He is right, selling all AIG’s assets fast to comply with the 24 month loan at ridiculous interest to pay back the gov’t makes both parties lose on the deal. Extend the term, reduce the interest and the gov’t will make a better longer term return on the investment for taxpayers. Otherwise, they will get around $40 billion back and nothing more! Mark my words…
Mostly it went for collateral. There was an article on this in the NYTimes.
When the “value” of the CDS changes, the seller posts collateral (like case reserves) in escrow for the benefit of the counterparty. The money sits there until such time as the CDS settles. If the value of the CDS comes back (ie if the mortgage payments exceed current pessimistic market expectations) the collateral is reduced. If not, then the collateral is used to pay the counterparty.
Bill, I didn’t say the Prez SHOULD be blamed. I said he WILL be blamed. And what’s with everyone planning for the an Obama Presidency? All I can say is, “Dewey Beats Truman”.
It’s obvious that many of you (not all of you) know anything about CDS/CDO’s. These are paper losses. If the market changes, the amount AIG borrows decreases due to mark to market valuation- given the current market conditions- these will likely not go any lower (we all have to hope they continue to increase…not just for AIG but for banks who all are facing the same issue) – if mark to market increases happen…AIG will be in a great place with those mark to market increases. Just like many of the banks. AIG have made it clear that they are not relying on this to happen.
AIG had a plan in place before 9/15 to deal with the mortgage losses and they accurately reported them and not just in the fine print of their balance sheets. Do you read yellow book? It just unfolded that market conditions precipitated AIG’s announcement of a plan which Liddy has posted to the public.
AIG is working hard to not have a “fire sale” as Liddy put it. Bank mergers and acquisitions take 6 months or longer and Liddy is trying to sell assets responsibility and get their FMV. So, while most of you bash AIG for not selling assets quickly, I have to assume that you think you could sell multi-billion dollar assets at their FMV in 45 days?! Get real!
You act like AIG was the only company the government helped- How soon you forget Freddie Mac, Fannie Mae, etc. I am guessing that you wish the government did not help AIG? Had they not helped, their financial crisis would have spelled disaster for the global economy.
As for them having other parties involved in the sale of assets…you should be happy. They are trying to be prudent and make sure for the better of the company, the people, and the government loan that they make the right decision. No silos.
As for Hank Greenberg- the credit swaps were bought under his reign. I heard that none were bought after he left in 2005. You treat him like a GOD but seem to forget he was investigated for his accounting practices and lack of control on accounting practices and reinsurance agreements.
If the government renegotiates with AIG, you should all be happy, so the return for tax payers would be greater as credit markets tend to improve over time.
When AIG emerges from this, as a smaller insurance company, they will not have the high overhead; they will be smaller and stronger. They will have a high ROE’s and then- we will hear many of you crying over the stock you did not buy!
Whaaaahhhh! There’s no crying! There’s no crying in Insurance and in finance!
Don’t get me wrong- I do NOT work for AIG but as an insurance professional for over 20 years, you have to read all the facts and sort through the facts and the BS.
Good information and analysis, DD. One question, though: Are we as taxpayers actually expected to think we will somehow profit from the AIG loan? Let’s not confuse money going to politicians and bureaucrats in Washington as a profit. It’s all the same regardles of whether it is money confiscated from taxpayers or money made on the bailout of a private enteprise.
I’m sure we will hear, though, about all the wonderful “investments” Barney Frank and the boys (this could be literal as well as figurative) will make from the AIG deal.
The money was used to post collateral on losing CDS (credit default swap)contracts.
Note that it is reported that the biggest counterparty to these CDS contracts was/is Goldman Sachs and they may have gone under if AIG defaulted. Who is a Goldman alum? Paulson…
More good analysis, DD, but you are missing the point. Loans or bailouts of this nature should be considered beyond the scope of our government.
Bottom line: I don’t trust Paulson anymore than the Congress. They spend like drunken sailors with virtually no accountability. It is obvious the accountatbility we think we inflict at the ballot box is not working since we seems to send the same buffoons back to Washington. They will keep misleading the general public, far too many misinformed people will lap it up and they will keep getting re-elected.
And for the record, I don’t give one hoot what Paulson or Congress thinks about AIG, especially since they can’t even mind their own shop in order.
I’ll give you this- our government stinks and does need reform especially with fiscal responsibility. That being said, I have a soft spot for making sure people understand AIG and the facts.
I’m not a fan of government intervention, but do any of you really have any thought to the collateral damage that would be done by allowing the collapse of this company? If it can be saved with no or minimal loss to the taxpayers, it should be done. There is so much to lose if it fails. I know, many of say let it fail to prove a point. Pretty expensive point. I suppose we will all find out in the end. I just hope that Congress pays more attention to this transaction than to the mortage industry. You can pass thousands of laws, but if the people who are supposed to enforce the laws don’t pay attention or worse, then none of those laws matter.
That is the real issue- you all believe that as tax payers you own part of AIG.
Just because the government has an 80% holding in AIG Corp (unrelated to the insurance companies) does not mean you as a taxpayer have any losses or increased taxes unlike the increased taxes we will all pay as a result of this “wonderful” war and HUGE deficit unrelated to the global financial crisis which we all will be paying on until we die!
I have to assume you think the same of the Freddie Mac and Fannie Mae? You own them too?
If the AIG plan unfolds as they expect it should, they would likely have the assets sold before the 2 yr period (which I think everyone hopes happens in the insurance industry). When that happens what will you all say then?
In all the reports I have read and seen on TV, analysts value the businesses AIG’s selling far more than the amount they borrowed from the government. And again, mark to market increases on the mortgage losses will improve their gains versus increase their losses, stop any additional borrowing and increase the value of CDSs when they come to maturity which can then be sold at a better FMV.
Paulson is a hard-*** and the AIG bridge loan would have never happened if the Fed did not have complete confidence in AIG. He was quoted that the government is not a bank for troubled companies. The Fed did not help many banks. Look at how many banks failed. The Fed could have helped Lehman too but they let Lehman fail because they did not believe they had a solid plan. The helped AIG because it was for the good of the global economy and they had a solid plan.
We are not talking about AIG pulling up to the bank and taking out a small loan here. It’s $85B plus the securities liquidity deal of what $35B. We are talking about high level people in our government scribing a loan with stiff penalities and high interest to help the government make money too!
AIG is trying to do the right thing and it is all of you nay-sayers and AIG haters or misinformed people that continue to spread misguided information and for that matter hate of AIG.
AIG did a lot of great things to help my customers over the years. While semi-retired now, I know they continue to do great things in my marketplace despite all the market turbulence. They could have backed off but they didn’t! They try harder for agents, financial planners, and customers inspite of the market turmoil. They stand a bit beaten but proud, hard-working people.
Did anyone ever think that former P&C insurance giants such as USF&G, Aetna or Reliance would no longer exist? Some evolve via M&A activity and others, sadly, become insolvent. The insurance industry and general economy survived the disappearance of these companies and will certainly survive the downfall of failure of AIG.
There is still a lot of business value in AIG and private capital will be attracted in some form or fashion as a result. We may not recognize AIG in the future, but it is safe to say it will not simply disappear because capitalists will see the business value and profit from it accordingly.
There are obviously human tragedies when people lose their livelihoods. However, we have to take the bad with the good in a capitalistic economy. The bottom line is there is much more good than bad based on the plethora of opportunity in America. And there is no guarantee that the breakup of AIG would result in the loss of thousands of jobs.
Whether it is the buggy whip industry or AIG, our economy and the American citizens who compromise it are extremely resilient. We just have to let capitalism work.
I agree wholeheartedly, DD. I have received many “press releases” from carriers trumpeting THEIR financial stability in what can only be termed predatory language. It’s more than obvious that they are referring/comparing themselves to AIG. It’s unseemly and just makes them look like complete vultures.
Dear Nobody,
If you read my prior blogs that was precisely my point! Everyone is hating AIG because the government helped them. So what?! At 13% interest or whatever it is, for paper losses, I question if I would call that help. But bottom line not helping AIG would have caused a global crisis. People don’t understand the global strength of AIG. So it’s easier to bash what you do not know.
Everyone needs to give AIG an chance to work out their plan!
I constantly read about AIG bashing on these blogs and am sick of it. AIG’s people are good honest hard working people and they deserve a chance to turn the company around at the errors of others and in this horrible economy.
As I said previously, everyone hates the big guy. Everyone speaks on these blogs erroneously about the AIG facts. They do not know the facts or only read the google articles which are not accurate. Then blog about hating AIG. It’s just wrong.
The employees of AIG insurance may feel a little beaten with all the poor press but they continue to work for their brokers. Can’t say that about other companies that had financial problems! I never saw those reps during bad times but boy do they come out now when the big guy is down!
The real thing here is that because insurance is regulated – the AIG insurance companies are well capitalized with more surplus than most of their competitors!
When AIG Corporate comes through this…what will the nay-sayers say then?
As for the government, as for big corporations in general, we need fiscal reform.
In addition, you should mention that when the ratings assigned to the party on the hook for the CDS are downgraded, that party has to post more collateral because the buyer of the CDS is more exposed to non-performance due to default.
In AIG’s case this has become a downward spiral. When AIG’s creit rating was cut on 9/16 (or was it 9/15) they were required to post about 14 billion of additional collateral (i.e. cash) they could not immediately obtain. That was posted by drawing from the government under the “loan” program AIG “voluntarily entered”.
The extra borrowing and the ham-handed way it was presented (first a vote, then no vote; first ownership, then a preferred position with warrants) resulted in more concern about AIG and more credit downgrades–thus the need to borrow more from the government.
Then the general histeria over the credit crunch, more rapid moves by the government against WM and WB and worries that loan portfolios are worse than thought at mid-September, so more default concerns and you guessed, more collateral needed and thus more borrowed from the government.
The government and AIG are in a different relationship today than 45 days ago. The n AIG owned the government 14 billion and AIG had a problem. Today, AIG owns the government more than 90 billion and now the government has a probelm.
Brokette, Bush will be gone soon, Congress will be asked to bail out GM and Ford at the request of Unions and probably more industries before its over Obamas administration will be handing out even more money than Paulson has spent. Any failure of a government controled entity will reflect on Congress and the Governments ability to function, either warranted or not. You are right that Bush and Paulson probably should be blamed for the bailout if it fails, I believe that Congress will bail them out again because, by the time this would happen Bush and Paulson will be gone and the media will not care about bashing them anymore. They will want a new person to blame that they can take down. Just look at the blaming by the biased media the current president has had to deal with. The media is not looking for fairness they look for blood.
Do you think that Liddy can make a decission on his own? or doed he have to call Paulson, Bernaki, or some other governmental entity to get aproval to make a deal for the parts of AIG. I heard the Government hire 2 or 3 companies to handle the sale of AIG’s Assets, Do you think that these 3 entities and the Goverment agencies and Liddy can all agree what to sell and at what price? The best analogy of this situation is trying to purchase real estate on a short sale basis. You make an offer to the bank and 3 months later you get a counter offer but no one knows who made the counter offer or how to get in touch with them. They will have a very difficult time getting this done in a timely fashion.
I’m confused. I thought Greenberg was ousted from AIG?? Why does he keep volunteering expert advice? Can someone explain.
E G O
Protecting his 11% interest in aig and fondness for the company he built. Whats the holdup in selling off assets??
Greenberg was ousted as CEO by Eliott Spitzer, Greenberg and others hired private investigators and set Spitzer up on the prostitute deal. Greenberg is the largest persosonal shareholder of AIG, roughly 16% of pre government bailout. Now the Government owns 80% of AIG and Greenberg owns 16% of the remaining 20%. Greenberg is very old and a little senile he should just sell what he can and spend his time in Hawaii, but instead he is angry about his demise as CEO and wants to buy some of AIG through his company C.V. Starr & Co. Problem is the CEO of AIG Liddy has to listen to him, not take his advice but listen because Greenberg is the largest shareholder besides the Feds the company has. Thats the nut case in a nut shell.
Thanks for clarifying.
I think you are correct about the 11% not the 16% I stated as he has sold a good part of his stock recently in an effort to build cash to buy parts of AIG.
Please tell me AIG is not going to default on the loan and we taxpayers aren’t going to be stuck with the $100. plus billion dollar loan we cannot collect.
Loan will not default, The feds now cannot let that happen, that would be such an embarrassment for the congress. I bought some AIG stock for 1.30 quite a few shares. OK, before you fall out of your chair laughing, I dont think I can lose. (remember my partner can print money) now who’s laughing.
Embarrassment for Congress? The media will plaster THAT failure all over the President and his Treasury Secretary. I don’t know what you’re smokin’ but this Congress is teflon.
Main reason assets aren’t moving is that those who would want to buy are cahs short. With credit still being tight they can’t get financing at a rate they can live with.
There are some very qualified buyers thye just need to work out some credit.
It is amazing how much this administration including current members of congress and the senate have screwed up this country.
I’m sure most of us never thought credit could be so hard to come by.
The assesment of Greenberg wanting to get a hold of some of the AIG assets is true. He want to turn C V Starr into another AIG.
Anyone wonder how come C V Star isn’t hurting at all? Look over the past 4 to 6 years of assest that Mr. Greenberg put into C V Starr instead of AIG. It will make your jaw drop.
Mongoose needs to use spell check. Amazing how things come around full circle.
The only nut case it the one that posted the conspiracy garbage. Spitzer made his own bed. Where do people like you get this garbage Bill? Greenberg spent a lifetime building a business and took pride in it, justified or unjustifed. He owns a portion of it. Why shouldn’t he be concerned conspiracy nut. Where do these people come from?
hank’s only worried about his money. i see where AIG has pretty much burned through the $85B given by our government, as well as the $37B additional thrown in. much to everyone’s surprise, there is no accounting, or controls or record of where all this money has gone. enough already, lets stop pouring more money down a big hole to pay for all the credit swaps AIG sold. nothing is too big to fail, i thought thats why there anti-monopolistic laws in place to prevent such a problem.!
Bill,
You are nuts. AIG was one of the premier financial companies in the world and almost all of it came after Hank took it over in the 70’s. Then Spitzer, a liar and cheat, runs him out of control. Credit swaps under Greenberg accounted for less than 5% of overall assets and was a controlled investment portion of AIG as soon as Greenberg was forced out it was no longer monitored and became out of control. Look at C.V. Starr and you will know how important Greenberg is to a company. He truly is the Warren Buffet of the World Financial Services. Old he may be but senile he is not!
The reason CV Starr is still doing good is Hank Greenberg. If that dope Spitzer wasn’t so hell bent on making a name for himself, Greenberg would still be in charge of AIG and we would not be in this mess. To think that Greenberg retaliated by setting up Spitzer is obsurd. The only part he may have played was hiring someone to follow Spitzer around to catch him banging the hooker. Greenberg still owns a good chunk of AIG and has a right to comment.
I too don’t understand where the actual money went? Maybe Paula Reynolds could hold a web-seminar and show us a power point on AIG economic dispersion and dispersal. Overnight the $85 Mil is gone?
Did they need it for payroll? What?!? All of their businesses are profitable so what’s the problem, take the bucks from there and grow it back.
How does a rich and powerful CEO get ousted from a company he helped build? My guess is, if he was clean he’d still be CEO.
If you’re having a problem getting credit, then maybe you shouldn’t be getting credit. I’m not having any problems. I guess it pays to pay your bills and have a great credit score. And lastly, if AIG gets to renegotiate a loan that they agreed to, then my mortgage company and car loan company should listen to me and give me new rates that I want. Isn’t that only fair? I’ll be ticked if they get to renegotiate better rates. To me that’s discrimination and the last I heard illegal in this country.
Large clients have been allowed to re-negotiate loan terms for years. Most lenders would prefer to lower their rate a fraction of a point than take property back and have to carry it on their books.
But now we’re the bank and we have alot of assets, so hey, one more, who cares? We shouldn’t be in this position in the first place. And let’s go one step futher, since our government is now in the private sector, I say we vote for one religion in this country and the government run it.
I’m sure once our new Prez Bama is inaugurated he will just throw some more of our taxpayer’s hard earned cash their way to keep them afloat. AIG is afterall one of the liberal’s charities, oops, I mean entitlement programs, right? Throwing govt money at a problem doesnt make it go away. What happened to letting the consequences of free enterprise work?
And the facts are:
Hank was done-in by a hypocritcal, santimonoius, schwandingling, whor-mongering, lying, crooked “governor”, because Spitzer had questions & charges to pursue, yet knew nothing about the validity of contingent commission arrangements in our industry
Problem was: insytaed of dealing with the S.O.B. Hank decided to challenge the putz
Mistake, because he was the governor
WHO gets hurt if AIG disappears
Everyone in the world. This is BIG and needs to be solved.
Liddy himself said “the mess is solvable” and that he would contruct a smaller, core focused AIG
So do it Ed.
-But if he doesn’t he’ll simply say, “Hey I got here when the share was 2.00…-don’t blame me”
Then, HE’LL walk away with a Fuld-Sullivan-like golden parachute
I would invest if Liddy would get out and let Hank come back. He would not have left the investments where they were until they devastated the company. Over 40 years of profitable quarters? All you insurance “guys” criticize this guy… I think jealousy might be an accurate description? I would put all my money in AIG if Hank came back. He is right, selling all AIG’s assets fast to comply with the 24 month loan at ridiculous interest to pay back the gov’t makes both parties lose on the deal. Extend the term, reduce the interest and the gov’t will make a better longer term return on the investment for taxpayers. Otherwise, they will get around $40 billion back and nothing more! Mark my words…
AZ Ins Man
Mostly it went for collateral. There was an article on this in the NYTimes.
When the “value” of the CDS changes, the seller posts collateral (like case reserves) in escrow for the benefit of the counterparty. The money sits there until such time as the CDS settles. If the value of the CDS comes back (ie if the mortgage payments exceed current pessimistic market expectations) the collateral is reduced. If not, then the collateral is used to pay the counterparty.
Bill, I didn’t say the Prez SHOULD be blamed. I said he WILL be blamed. And what’s with everyone planning for the an Obama Presidency? All I can say is, “Dewey Beats Truman”.
You all are driving me crazy!
It’s obvious that many of you (not all of you) know anything about CDS/CDO’s. These are paper losses. If the market changes, the amount AIG borrows decreases due to mark to market valuation- given the current market conditions- these will likely not go any lower (we all have to hope they continue to increase…not just for AIG but for banks who all are facing the same issue) – if mark to market increases happen…AIG will be in a great place with those mark to market increases. Just like many of the banks. AIG have made it clear that they are not relying on this to happen.
AIG had a plan in place before 9/15 to deal with the mortgage losses and they accurately reported them and not just in the fine print of their balance sheets. Do you read yellow book? It just unfolded that market conditions precipitated AIG’s announcement of a plan which Liddy has posted to the public.
AIG is working hard to not have a “fire sale” as Liddy put it. Bank mergers and acquisitions take 6 months or longer and Liddy is trying to sell assets responsibility and get their FMV. So, while most of you bash AIG for not selling assets quickly, I have to assume that you think you could sell multi-billion dollar assets at their FMV in 45 days?! Get real!
You act like AIG was the only company the government helped- How soon you forget Freddie Mac, Fannie Mae, etc. I am guessing that you wish the government did not help AIG? Had they not helped, their financial crisis would have spelled disaster for the global economy.
As for them having other parties involved in the sale of assets…you should be happy. They are trying to be prudent and make sure for the better of the company, the people, and the government loan that they make the right decision. No silos.
As for Hank Greenberg- the credit swaps were bought under his reign. I heard that none were bought after he left in 2005. You treat him like a GOD but seem to forget he was investigated for his accounting practices and lack of control on accounting practices and reinsurance agreements.
If the government renegotiates with AIG, you should all be happy, so the return for tax payers would be greater as credit markets tend to improve over time.
When AIG emerges from this, as a smaller insurance company, they will not have the high overhead; they will be smaller and stronger. They will have a high ROE’s and then- we will hear many of you crying over the stock you did not buy!
Whaaaahhhh! There’s no crying! There’s no crying in Insurance and in finance!
Don’t get me wrong- I do NOT work for AIG but as an insurance professional for over 20 years, you have to read all the facts and sort through the facts and the BS.
Good information and analysis, DD. One question, though: Are we as taxpayers actually expected to think we will somehow profit from the AIG loan? Let’s not confuse money going to politicians and bureaucrats in Washington as a profit. It’s all the same regardles of whether it is money confiscated from taxpayers or money made on the bailout of a private enteprise.
I’m sure we will hear, though, about all the wonderful “investments” Barney Frank and the boys (this could be literal as well as figurative) will make from the AIG deal.
The money was used to post collateral on losing CDS (credit default swap)contracts.
Note that it is reported that the biggest counterparty to these CDS contracts was/is Goldman Sachs and they may have gone under if AIG defaulted. Who is a Goldman alum? Paulson…
More good analysis, DD, but you are missing the point. Loans or bailouts of this nature should be considered beyond the scope of our government.
Bottom line: I don’t trust Paulson anymore than the Congress. They spend like drunken sailors with virtually no accountability. It is obvious the accountatbility we think we inflict at the ballot box is not working since we seems to send the same buffoons back to Washington. They will keep misleading the general public, far too many misinformed people will lap it up and they will keep getting re-elected.
And for the record, I don’t give one hoot what Paulson or Congress thinks about AIG, especially since they can’t even mind their own shop in order.
I’ll give you this- our government stinks and does need reform especially with fiscal responsibility. That being said, I have a soft spot for making sure people understand AIG and the facts.
I’m not a fan of government intervention, but do any of you really have any thought to the collateral damage that would be done by allowing the collapse of this company? If it can be saved with no or minimal loss to the taxpayers, it should be done. There is so much to lose if it fails. I know, many of say let it fail to prove a point. Pretty expensive point. I suppose we will all find out in the end. I just hope that Congress pays more attention to this transaction than to the mortage industry. You can pass thousands of laws, but if the people who are supposed to enforce the laws don’t pay attention or worse, then none of those laws matter.
That is the real issue- you all believe that as tax payers you own part of AIG.
Just because the government has an 80% holding in AIG Corp (unrelated to the insurance companies) does not mean you as a taxpayer have any losses or increased taxes unlike the increased taxes we will all pay as a result of this “wonderful” war and HUGE deficit unrelated to the global financial crisis which we all will be paying on until we die!
I have to assume you think the same of the Freddie Mac and Fannie Mae? You own them too?
If the AIG plan unfolds as they expect it should, they would likely have the assets sold before the 2 yr period (which I think everyone hopes happens in the insurance industry). When that happens what will you all say then?
In all the reports I have read and seen on TV, analysts value the businesses AIG’s selling far more than the amount they borrowed from the government. And again, mark to market increases on the mortgage losses will improve their gains versus increase their losses, stop any additional borrowing and increase the value of CDSs when they come to maturity which can then be sold at a better FMV.
Paulson is a hard-*** and the AIG bridge loan would have never happened if the Fed did not have complete confidence in AIG. He was quoted that the government is not a bank for troubled companies. The Fed did not help many banks. Look at how many banks failed. The Fed could have helped Lehman too but they let Lehman fail because they did not believe they had a solid plan. The helped AIG because it was for the good of the global economy and they had a solid plan.
We are not talking about AIG pulling up to the bank and taking out a small loan here. It’s $85B plus the securities liquidity deal of what $35B. We are talking about high level people in our government scribing a loan with stiff penalities and high interest to help the government make money too!
AIG is trying to do the right thing and it is all of you nay-sayers and AIG haters or misinformed people that continue to spread misguided information and for that matter hate of AIG.
AIG did a lot of great things to help my customers over the years. While semi-retired now, I know they continue to do great things in my marketplace despite all the market turbulence. They could have backed off but they didn’t! They try harder for agents, financial planners, and customers inspite of the market turmoil. They stand a bit beaten but proud, hard-working people.
Did anyone ever think that former P&C insurance giants such as USF&G, Aetna or Reliance would no longer exist? Some evolve via M&A activity and others, sadly, become insolvent. The insurance industry and general economy survived the disappearance of these companies and will certainly survive the downfall of failure of AIG.
There is still a lot of business value in AIG and private capital will be attracted in some form or fashion as a result. We may not recognize AIG in the future, but it is safe to say it will not simply disappear because capitalists will see the business value and profit from it accordingly.
There are obviously human tragedies when people lose their livelihoods. However, we have to take the bad with the good in a capitalistic economy. The bottom line is there is much more good than bad based on the plethora of opportunity in America. And there is no guarantee that the breakup of AIG would result in the loss of thousands of jobs.
Whether it is the buggy whip industry or AIG, our economy and the American citizens who compromise it are extremely resilient. We just have to let capitalism work.
I agree wholeheartedly, DD. I have received many “press releases” from carriers trumpeting THEIR financial stability in what can only be termed predatory language. It’s more than obvious that they are referring/comparing themselves to AIG. It’s unseemly and just makes them look like complete vultures.
Ok, we admit we resemble that remark.
Dear Nobody,
If you read my prior blogs that was precisely my point! Everyone is hating AIG because the government helped them. So what?! At 13% interest or whatever it is, for paper losses, I question if I would call that help. But bottom line not helping AIG would have caused a global crisis. People don’t understand the global strength of AIG. So it’s easier to bash what you do not know.
Everyone needs to give AIG an chance to work out their plan!
I constantly read about AIG bashing on these blogs and am sick of it. AIG’s people are good honest hard working people and they deserve a chance to turn the company around at the errors of others and in this horrible economy.
As I said previously, everyone hates the big guy. Everyone speaks on these blogs erroneously about the AIG facts. They do not know the facts or only read the google articles which are not accurate. Then blog about hating AIG. It’s just wrong.
The employees of AIG insurance may feel a little beaten with all the poor press but they continue to work for their brokers. Can’t say that about other companies that had financial problems! I never saw those reps during bad times but boy do they come out now when the big guy is down!
The real thing here is that because insurance is regulated – the AIG insurance companies are well capitalized with more surplus than most of their competitors!
When AIG Corporate comes through this…what will the nay-sayers say then?
As for the government, as for big corporations in general, we need fiscal reform.