 AIG's executives were scolded on Capitol Hill ... and then they partied on, dude
Did you hear the one about the credit default swap peddler / insurance giant who went in the toilet, got a huge bailout from Uncle Sam, then got a second bailout, and blew the money on lavish parties for their top sales performers and executives? Well here's the sequel:
Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.
Reporters for abc15.com (KNXV) caught the AIG executives on hidden cameras poolside and leaving the spa at the Pointe Hilton Squaw Peak Resort, despite apparent efforts by the company to disguise its involvement. "AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property," KNXV reported. (click here to see the full KNXV report) A hotel employee told KNXV reporter Josh Bernstein, "We can't even say the word [AIG]." A company spokesperson, Nick Ashooh, confirmed AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff. "We're trying to avoid confrontation, keep our profile low," said Ashooh. "Some of our employees have been harassed." You don't say... By the way those please were quite successful: US Treasury Secretary Henry Paulson's decision to inject another US$27 billion into failed insurer AIG and raise the taxpayers' investment to $150 billion suggests he is more intent on helping his pals on Wall Street than protecting taxpayer interests. And the Asia Times also explains how we got into this mess:
AIG has solid businesses in industrial, commercial and life insurance, but like a lot of financial firms was attracted to easy profits writing credit default swaps on mortgage-backed bonds - so called collateralized debt obligations (CDOs).
AIG received fees to guarantee repayment of those mortgages, or the funds obtained through foreclosures when homeowners defaulted. Like most on Wall Street, AIG executives believed home prices would rise faster than household incomes forever, so these CDOs really bore little risk.
 This credit default swap business was outside AIG's highly regulated, solid insurance businesses but was backed by the value of those businesses. Essentially, if the CDOs fell too much in value, AIG pledged the value of those businesses.
If an abnormal number of the mortgages failed, the held-to-maturity value of the CDOs would fall and obligations would trigger for AIG to post collateral. When that happened in 2007, AIG deposited cash or other liquid assets with the investors holding the CDOs. With the housing market so depressed by the summer of 2007, AIG could not raise enough cash to meet all its obligations.
On September 16, the Federal Reserve provided $85 billion in loans to AIG in exchange for warrants - the right to buy common stock - equal to 79.9% of the company.
AIG was to pay 8.5% above the benchmark London Interbank Offered Rate (Libor) for the first $85 billion. The insurer was to use the loans to honor obligations to holders of the credit default swaps, and AIG was to sell parts of its insurance businesses to repay the loans to the Federal Reserve. That loan proved inadequate, and the Fed advanced another $38 billion on October 9.
The $123 billion was not enough to finance AIG's short-term credit default swap obligations, and it cannot sell enough pieces of its good insurance businesses to pay back the Federal Reserve in the current environment.
Now, the Federal Reserve and Treasury are agreeing to restructure $60 billion of the original loan, lowering the interest rate to 3% above Libor and invest about another $27 billion in AIG. The interest rates on the loans were lowered, in part, because large shareholders complained about heavy-handed government action.
How wonderful for AIG! The rest of us? Not so much. Where are the Marshalls when you need them. Back to the party:
Company officials confirmed the company spent an estimated $343,000 to sponsor the 2008 Asset Management Conference. A spokesperson said much of the cost would be recouped from product sponsors at the conference. KNXV said the president of AIG unit Royal Alliance Associates, Art Tambaro, stayed in a two-story Casita suite and worked out at the spa while others participated in seminars.
Medic!
Labels: AIG, corruption, financial crisis, thieves, Wall Street |
