Real AIG Scandal: the Banks Are Cleaning Up

The Real AIG Scandal…It’s not the bonuses.

It’s that AIG’s counterparties are getting paid back in full.

American International Group Inc. Click image to expand.AIG’s Manhattan, N.Y., office

Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG’s counterparties are justified with an appeal to the sanctity of contract. If AIG’s contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren’t we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

Continue reading Real AIG Scandal: the Banks Are Cleaning Up

A Letter to an AIG Executive

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To AIG from “Faith,” a caring daughter

My mother is an 83-year-old single woman suffering from Post Polio Syndrome. She has been waiting for more than one year for payment of the money AIG approved for damage due to a broken pipe that destroyed the first floor of her single family, two-story house in January, 2008. During the past year, AIG has done everything in their power NOT to pay the money due, including subjecting her to a 5+ hour deposition for which she had to hire an attorney. I would like to ask one of the AIG executives who received a $1M+ bonus: would you consider giving my mother a loan while your adjusters and underwriters at AIG continue to delay the payment AIG has already approved? Because right now, she’s living on balance transfers and hand-outs from her children — taxpayers who paid for your bonus. After spending a lifetime at work so that she could afford to pay her homeowner’s insurance premium each month, on time, every year for the last 49 years, do you think you could do her this one little favor?