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Monday, March 16, 2009

Oregon got $270 million out of feds' AIG bailout

Blood has been boiling all weekend about the bonuses that are being paid to the slick dudes who ran AIG into the ground -- all of which bonuses are being paid with bailout money from the federal taxpayers. Even more troubling, though, are the revelations about where much bigger AIG bailout bucks went. The shadowy insurance giant apparently paid out on some derivative contracts and similar insurance policies where the policyholders hadn't even recognized their insured losses yet:

[S]ecrecy [surrounding the payments on the claims] raised hackles because the insurance claims were paid off in full, even though widespread defaults on the underlying debt have not occurred. Why, many people wonder, did the Fed make A.I.G.'s counterparties whole on losses that have not happened yet? Why didn't it force these financial companies to close out the contracts at a discount, making them take what is known on Wall Street as a "haircut"?
And surprise, surprise! Old Henry Paulson's cronies at Goldman Sachs got checks for $12.9 billion out of the deal -- on top of the TARP dough (I believe it was $10 billion) Goldman got from the government directly.

Some state governments also got paid, and lo and behold, Oregon is one of them. According to this press release from AIG, the amount was $0.27 billion. It will be interesting to read what that was all about -- if the local media bother to ask. Apparently the folks running the state's money parked some of it in a risky place and lost. Oregon was 10th from the top on the list of states whose deals with AIG required bailout funds.

Oregon's relationship with AIG has never been a smooth one. About a year ago, the state reportedly sued the company for alleged securities fraud over purchases of AIG common stock by the PERS state employee retirement fund. AIG also reportedly settled with the state early last year after a multi-state investigation was launched into its brokerage commission practices and alleged bid-rigging.

Comments (7)

Yet more evidence that there is no government-big business demarcation. They're in bed together big time. Granted it's a tortured relationship but there is no question there's a relationship.

This also makes the case for an AIG bankruptcy because in the event of a bankruptcy all of these employment contracts that our government (now essentially the owner of AIG) claims they cannot alter or modify would be null and void.

Government has degenerated into a huge pay off system. Big campaign donors pay off those in government and those in government repay them with money taken by force from those who earned it (taxes). Like a Ponzi scheme this will continue until government is no longer able to extract enough money from the taxpayers pay off those they need to pay off.

About to buy travel insurance from Travel Guard. Whoops! That's AIG.

The money was for GICs or guaranteed investment contracts (or agreements). Historically these have been thought of a safe investments and plenty of individuals owned them as well. To be fair to the owners of these, I think two years ago few any of us thought AIG would go under. Of course, that was in large part due to the lack of transparency on their balance sheet.

What I am waiting for is the failure of annuities, which is another insurance company product with guarantees. A lot of average people have been sold these over the years by investment advisers taking hefty commissions.

Quit reminding me that I have friends in low places :)

Good information Jack. As I understand it, the "insurance" products and businesses of AIG are sound and required to maintain sufficient reserves to cover current and future liabilities.

The "swap" products (i.e. "credit default swaps" have no such backing and are what put AIG in deep doo doo. That is where most of the 170 billion treasury has spent thus far has gone.

Treasury is hoping to get AIG through its unfunded "swaps dilemma" so that the sound "insurance" business can be sold off to repay every dollar treasury has to throw down the "swaps" rathole.

Question: Who permitted AIG to call Credit Default Insurance a "swap" so they could evade the reserve requirements of insurance products?

"Old Henry Paulson's cronies at Goldman Sachs"

What is Hank Paulson's relationship with Goldman Sachs today?

My recollection is that he was a partner in and chief executive of Goldman Sachs but took a leave of absence to become Treasury Secretary.

My understanding it that much of the credit default swap mess created at Goldman Sachs took place on Paulson's watch, and that partner funds were involved.

There's an article in today's Chicago Tribune about Edward Liddy breaking contracts when he was chief executive of Allstate. Recommended reading.

Whether British law prevents Liddy from doing the same thing at AIG (the Financial Products unit is in London) or whether someone else is calling the shots will hopefully be made clear when he goes to Capitol Hill tomorrow to face members of Congress.

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