The latest saga of this ongoing financial debacle centers around $165 million of American International Group (AIG) bonuses paid out to the very same executives that led the flailing insurer down the road towards ultimate collapse.
The shenanigans have further incited populist outrage directed at a crumbling, free-wheeling culture that has been unceremoniously dismissed as a laissez-faire sham. Recent developments have spiraled out of control, promulgating a circus like dog and pony show of finger pointing, death threats, and open calls for the resignation of the Secretary of the U.S. Treasury.
AIG is a Disaster
The leading insurer at one point featured a market capitalization of over $100 billion and served as a prominent fixture of the Dow Jones Industrial Average. In summary, American International Group is a dominant player within all lines of insurance – particularly products designed to protect trading partners from the risk of counter party failure. Proper collateral and reserves must be posted in order for any insurer to make good on these promises. Still, AIG upped the ante throughout the credit and real estate boom – aggressively embracing egregious levels of risk to maintain pace with competitors.
Then, the bottom fell out in 2008 – with the AIG Financial Products Division serving as a critical flash point of the ensuing storm.
The viscous cycle of forced deleveraging arrived part in parcel with collapsing property values, minimal access to free capital, and credit rating agency downgrades that mandated AIG to put up even more collateral. Of course, AIG was then forced to liquidate assets at fire sale prices.
The September 15, 2008 bankruptcy of Lehman Brothers exacerbated the malaise as inquisitive onlookers questioned the valuations of distressed securities festering within AIG’s books. The brutal developments threatened to crush AIG and set off yet another wave of chaos as this mega, multi-billion dollar insurer would have destroyed thousands of global banking institutions.
Federal Government Bailout
The U.S. Government proceeded to institute fiscal Marshall Law – effectively designating AIG as a “Too big to Fail” intermediary. $170 billion worth of Treasury Asset Relief Program (TARP) loans, guarantees, and veiled capital grant money was funneled from the tax payer to American International Group coffers via Treasury and the Federal Reserve Bank. The legendary bailout is rivaled only by the nationalization of our Fannie Mae and Freddie Mac government sponsored enterprises.
The brewing outrage has only grown with every headline depicting a ramshackle banking culture that apparently masterminded the demise of Main Street America. Politicians and economic policy wonks must delicately balance the act of saving AIG, preserving the sanctity of high finance, and commiserating with populist contempt.
Of course, the well-intentioned U.S. Capitol brain trust has only been further embarrassed by sordid details of $1,000,000 resort vacations, lavish gifts, and the recent $165 million worth of bonus payments to AIG brass financed by the taxpayer.
AIG Management Receives Death Threats and Tim Geithner is Under Fire
The spectacle established a brand new crescendo on Wednesday, March 18, 2009. The day’s Congressional hearings arrived in the brief aftermath of a Republican leader urging AIG executives to commit suicide and shocking death threats being delivered to AIG’s New York offices threatening retaliation via chicken wire asphyxiation.
Today’s fiasco was highlighted by New York Attorney General Andrew Cuomo demanding a list of AIG executives receiving bonus payouts, statesmen threatening to tax these bonuses at 100%, protestors demanding that Treasury Secretary Geithner is fired, and President Barack Obama’s resounding assurance of White House support for the beleaguered Treasurer. Says Obama:
“He has been dealt a bad hand – but has made all the right moves.”
Embattled AIG boss, Edward Liddy stood tall – refusing to give up names. The latest installment of castigated AIG Hank Greenberg / Martin Sullivan / Robert Willumstad front men claims that systematically identifying and forcing these AIG leaders to return the bonus money will provoke critical managers to resign at best and put their lives in jeopardy at – worst.
Chairman Liddy, although visibly demoralized by the bonus contracts implemented prior to his watch has refused to kowtow to the mass anger that rails against a rigged system rewarding Bigwig failure – while working class, middling Americans lose their homes. Hacks jest that Liddy is out-of-touch with his declaration of mass defections – because these AIG imbeciles would be unable to find work in this wretched job market, anyway.
Of course, Wall Street remained unfazed by the televised, Comedy Hour. Stocks, taking their cue from the Federal Reserve Bank’s commitment to purchase an additional $300 billion worth of treasuries sprinted to spirited gains – yet again. The Dow Jones Industrial Average added 91 points to close out at 7,486.58
Shares of AIG skyrocketed by 41 cents to $1.37 – a 43% surge on the trading session.
This is a circus.
AIG Bonus Outrage, Sources:
American International Group, www.aig.com
Alistair Barr and Sam Mumudi, AIG CEO, some staff get Death Threats over bonuses, http://www.marketwatch.com/news/story/aig-chief-staff-get-death/story.aspx?guid=%7B9E4DE47C%2DB6C8%2D42FB%2DBEFA%2DF963FA5CA3AC%7D&tool=1&dist=bigcharts&symb=AIG&sid=511
Carol Loomis, Last Minute Advice for AIG’s Ed Liddy, http://money.cnn.com/2009/03/18/magazines/fortune/liddy_advice.fortune/index.htm?postversion=2009031813