As we have been saying for quite some time, the AIG bailout was an indirect bailout of many entities.  This allowed for 1 hated entity (AIG) to take the fall for many that would be better off not tarnished (GS).  There would have also been a major backlash due to the foreign entities that benefited from the AIG (100 cents on the dollar) bailout.

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG

via Geithner’s New York Fed Told AIG to Limit Swaps Disclosure – Bloomberg.com.

Not out of the woods by any means yet, folks.  In fact, some of the support that the government provided might just prove to be like a financial Vietnam…  A bad situation with  resolution options that are painful no matter which you choose.

Choices

1. I slap you in the face
2. I kick you in the shin
3. I take all of your money

…Get the picture?

Read the excerpt below.  Lovely.  The link to the full article continues below.

We still face serious headwinds in the economy and, as I’ve said many times this year, the current market valuations are ignoring the risk factors of owning equities – an amazing thing considering how recently those risk factors showed up and bit people’s faces off both last fall and this spring.  For example, according to the NYTimes this morning,  American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.  The total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.

via Fa La La Friday – Scroogy Swap Prices Blacken Christmas | Phil’s Stock World.

The AIG saga is almost funny.  I say almost because there are far too many US tax dollars being used like Monopoly money.  I feel that the government pay restrictions are a bit ridiculous (who has the say, who picks the arbitrary amount, etc), but it looks like the expected uproar over this issue is coming.

The government has their hands full with AIG.  They need to superstar employees to generate enough cash to give the appearance that a payback is possible.  Without them, the whole company could come crashing down.   This is going to get worse each and every quarter.

Five high-ranking executives at American International Group Inc. said last week they were prepared to quit if their compensation is cut significantly by the insurer's government overseers, according to people familiar with the matter.

via Fresh Pay Skirmish Erupts at AIG – WSJ.com.

We have covered quite a bit of AIG news on BobandScott.com since the bailout (AIG story history).  Frankly, I am still stunned at the levels that AIG trades at.  The is a public entity with negative book value and a giant mountain of debt to pay down.

In July, there was a growing speculation, that AIG was essentially used as a vehicle to pay down other entities with rather strong ties to the decision makers.

http://www.bobandscott.com/market-news/was-the-aig-bailout-a-goldman-bailout-by-proxy/

As more of the facts come to light, it becomes clear that the AIG bailout was paying out at levels that were unnecessary.  The payouts were to people rather close to the Fed and those in power.

On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up.

via Fair Game – Revisiting a Fed Waltz With A.I.G. – NYTimes.com.

If our market takes an extended breather, and we head toward a double dip recession, there might finally be some examination of what is happening on Wall Street and K street.

The financial services lobby is probably the strongest that there is. Many politicians, their friends, and relatives work for (or sit on the boards of) the very same firms that they are tasked with overseeing.

From the beginning, the AIG bailout appeared to be a method to get money into the hands of a select number of financial services firms (primarily Goldman Sachs).  The more information that comes out confirms those details that we suspected long ago.  Not only that, it is even more than that.  If you read below, Geithner took the step to cover 100% of  certain instruments even when they could have been covered at a much lower number.

…the smoking gun for Secretary Geithner comes from a recent Bloomberg FOIA disclosure regarding events from last November. It was then that New York Federal Reserve Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret no less, to pay off the counter parties to the worlds largest and still un-investigated insurance fraud — AIG. This full payoff with taxpayer dollars was carried out by Geithner after AIGs bank customers, such as Goldman Sachs, Deutsche Bank and Societe Generale, had already previously agreed to taking as little as 40 cents on the dollar. Even after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, he still had the audacity to claim the “sanctity of contracts” in the dealings with these companies like AIG.

via Its Time To Fire Tim Geithner.

Maurice Greenberg is a smart, well connected, and aggressive businessman.  Along with that, he made a lot of people a lot of money.  Do you know what that gets you?  Loyalty in exchange for another huge paycheck/payday.

AIG has enough trouble.  With assets that don’t even cover their debt (much less the value of the common shares) this company is not going to be around for a great length of time.

Maurice "Hank" Greenberg

Greenberg and other Wall Street firms are plucking away at this carcass that is unable to move as aggressively as they once were.

Read the following Time article to get an idea of what MG is up to.  Putting his key people back in place and stealing some of the best former clients to get the easy cash flowing.  Once the cash flow starts rolling, the large scale acquisitions will follow.

Maurice Greenberg Is Busy Building His ‘A.I.G. 2,’ C. V. Starr – NYTimes.com.

How good are things out there?

It generally isn’t a good thing when you accept the offer, of whoever is holding your note, to skip a payment for a month.  This is a very common tactic for credit card companies and even came into the mortgage market a bit near the peak.  Interest still accrues.

There are many who will not have a problem with ‘catching up’ the next month, but it came with a cost.  There are also those who are in serious trouble and using this as a last ditch prior to bigger problems.

There are some big names on the list.  AIG… big surprise (of course not).  Citizens… I though that they were doing OK.  Perhaps not.

It is generally never a good idea to put something off like this.

Yow! Number of Banks Not Making TARP Payments Skyrockets!.

I want you all to read the key line in this article and stop trading in worthless shares!

the exchange would hand control to its bondholders and wipe out common stockholders.

This is what happens nowadays when there is a highly leveraged (and often bailed out) entity where the debt exceeds the value of the assets.  Pretty simple math.

Bob

Who is doing the math on AIG??  When are we going to see a government entity to bring them in and bust them up?  I think it will happen unless the story fades away.  If it fades out of the spotlight, the politicians won’t care to act.

Consider your high risk shares.  We are in

via The Associated Press: Report: CIT Group again on brink of collapse.

The article below is a must read if you want to go long AIG.

AIG Needs Dissolving — Seeking Alpha.

I have gotten stuck holding the bag on some AIG puts due to the huge, crazy, run of late. $54?? Wow.  This thing should not be around.

I will stick to the point I made in my article about AIG Going Away.  My feeling back in June was the the government was going to find a tidy way to wind things down and then bring AIG in via a vehicle similar to the FDIC or RTC.  There was talk of any agency to bring in non-bank financials, but that doesn’t appear to have gone anywhere.

Edolphus Towns and other politicians have to stop listening to those proposals brought to them by people who have the most to gain!

AIG Fading to Failur

WHAT, why??

This is bazaar and sick!  It makes me realize that the deck is stacked hard against the common man.  AIG was a reckless and aggressive company who put our entire financial system at risk with risky coverage on risky loans.  They essentially insured what they assumed couldn’t go bad.  When the housing market collapsed, AIG was left holding the bag, naked, with billions to pay and billions more still at risk.

NOW!  The man with the most to gain from it’s recovery (Hank Greenberg) is floating a proposal that will have a greater impact on his personal wealth than anything he has done before.

GET THIS! Congress is listening!!  Edolphus Towns met with Greenberg behind closed doors and Towns came out with a proposal later that day.

Representative Brad Sherman, a California Democrat on the House Financial Services Committee, said he “couldn’t imagine” that his committee would support a revised rescue.

“The effort is clear: Take more risks with U.S. taxpayer dollars,” Sherman said in an interview. “If there are profits to be made, they go to enormous bonuses for executives and big money for Greenberg. If there are losses, they’re borne by the people in my district and other districts.”

I am at a loss here.  This company shouldn’t really exist.   They are way under water.  However, a fundraiser here, a donation there, a job there, and congress is fast to act!  Sick!!

The company’s bailout includes a $60 billion Fed credit line, a Treasury Department investment of as much as $70 billion, and $52.5 billion to buy mortgage-linked assets. AIG owes more than $39 billion on the credit line as of last week, and has tapped the Treasury for more than $40 billion.

Towns May Seek to Ease AIG’s Government Bailout Terms (Update3) – Bloomberg.com.

AIG - Absurd Proposal gets Towns to listen