AIG to Dole Out $165 million in Bonuses

Please label that as opinion because it displays so much ignorance as to be laughable.

 

No, it's like saying don't punish the old lady.

 

Not true, or, in your words, bullchit. AIG Commercial Insurance, Inc. (AIGCI) is completely separate in terms of assets and financials. They are regulated and assets could not be utilized by the parent, AIG, Inc. even if they wanted to. AIGCI is well capitalized and fully able to discharge it's obligations to its insureds.

In fact, they have. I now work for AIU Holdings, Inc. which is completely autonomous with it's own management and board of directors.

A few facts about the parent:

AIG is the world's largest property-casualty insurer and insures 94% of the Fortune 500. In the U.S., AIG is the leading underwriter of D&O, Professional Liability, Workers’ Compensation and many other lines. We are the largest
U.S. based insurer in Europe.

AIG’s life insurance network is the biggest in the world. We're the largest life insurance provider in Southeast Asia, the Middle East, Hong Kong, the Philippines, Singapore, Thailand and elsewhere. In Japan, we are the top foreign life insurer, and in the U.S., we are number one in term life and ordinary life.

AIG is the largest issuer of fixed annuities in the U.S., and the leading provider of retirement savings for primary and secondary school teachers and healthcare workers.

AIG is the largest owner of airplanes in the world and the largest customer of Boeing and General Electric's Aircraft Maintenance Division, among others.

AIG is the largest investor in corporate bonds in the U.S. and among the top five institutional asset managers in the world.

Most, if not all, of those companies are on the block. ALL proceeds will go directly to the US Treasury until the loan is repaid. The problem is that in the current market, AIG cannot get nearly what the value of those assets are so, in the interest of protecting the taxpayers investment, the Feds agreed to extend the line of credit. The most recent, I believe, $30B, is available but has not yet been touched.

I understand the outrage over todays news about bonuses and there are some that I probably won't agree with either, but AIG is still in business and it's in the taxpayers best interest to keep them going so that the billions loaned out get repaid. You cannot hamstring their operations by cherrypicking every outlay and expressing outrage over the "waste" of hard-earned tax dollars.

 

Kind of funny to see you two goin at it on a Sunday! Drive on. :grin:

 

"Insuring" and "Insurance Portion" are an oversimplification. AIG needed the bailout because they were victims of the collapsing sub prime market just like everyone else.


Read this analysis which, IMO, best explains what happened:

http://www.insurancejournal.com/news/national/2009/03/03/98327.htm

It's AIU, not AIG, Holdings and it will not be a wholly owned subsidiary. It will be totally independent of the parent which will be basically dismantled in order to pay back the Feds.

The website is not updated, but the total transition, including dates and circumstances of an IPO are months away. This doesn't happen overnight.

 

This is part true, but AIG is also victim of their financial products group and the Credit Default Swap (CDS) derivatives they sold. I don't hear anyone talking about the derivatives market, and it is a big contributor to the financial crisis, but few talk about it.

I'm not an expert on CDS, but as I understand them, they are intended as an insurance policy against a company defaulting on their bonds (debt). So, if I buy the bonds of company A (loan them my money), I could buy a CDS from company B that would pay me if co. A goes bankrupt. So, I think AIG didn't think anyone they were insuring would go broke, and they didn't charge a high enough premium on the CDS. Now several co. A's are going bankrupt, like Lehman Bros., and AIG can't pay off all the CDS holders.

These CDS began to trade like options on co. A. CDS far in excess of the actual bonded debt of co. A were being sold, so the risk to the insurer far exceeded the amount of bonds being traded. This was because of lack of regulation of the CDS market, and lack of regulation of derivatives in general and an apparent lack of understanding by AIG of the instrument they were selling and the potential payout they faced on the CDS derivatives. There are the instruments that Buffet called "weapons of mass financial destruction" and he would not touch them.

I think AIG's big problem was participation directly in the derivatives market, specifically CDS, rather than directly attributed to subprime mortgage defaults.

 

I am not trying to absolve AIG of guilt because there were decisions made that put them in that situation, but neither was it a situation where execs were trying to line their pockets at the expense of the stockholders.
When (former CEO) Greenberg left in 2005, his successor immediately abandoned the investment strategies that were profitable but risky. It was too little, too late, however.

 

Why did Greenberg leave? I see him on CNBC in the AM sometimes and he seems smart. Did he want to leave for age reasons, or was he forced out?

Edited: I've heard Greenberg say that his successor abandoned the strong risk management policies he followed and that was why AIG got in trouble. He said his risk management dept. was on top of things.