AIG's meltdown has roots in Greenberg era

[Joanne98]

Source: Reuters


NEW YORK (Reuters) - Maurice "Hank" Greenberg's legacy as the man who built AIG into the world's largest insurer was tarnished by a 2005 probe but questions about whether he created a financial monster that subsequently ran amok could cause greater damage to his image.

The former Army captain -- who left AIG in 2005 amid allegations he used off-balance sheet transactions to improperly boost profits -- had previously been revered for his track record of steady profit growth over a 38-year tenure.

In the years since he quit AIG, Greenberg has pursued other business interests, but much of his time has been spent defending his name and railing against a succession of CEOs who replaced him at AIG.

But AIG's posting on Monday of a $61.7 billion quarterly loss, the biggest in corporate history, and the announcement of a third bailout by the U.S. government have prompted his critics to ask whether Greenberg planted the seeds of the financial disaster that already threatens to cost taxpayers $180 billion.




Read more: http://www.reuters.com/article/newsOne/idUSTRE5222EV20090303

[sarcasmo]

1. On MSNBC right now crying about suing AIG. I think this could bring down Paulsson, if it goes to

Trial.

[URDRWHO]

2. Underwriting or financial loss

I would guess that what we hear about AIG is for their financial investment losses. I doubt if the losses are from insurance underwriting.

I say let the financial side of AIG die and let the other companies take their insurance business.

I am finally vindicated because I was a big time ranter against mega-corp financial institutions and people told me I was too opposed to change. When Weil was building his CitiGroup he was also pushing buttons to get Glass Stegall quashed. There is a problem when the mega-corps start acting as quasi government entities and when the government gives Corporations rights that are/were only granted to citizens.

It is time to let some of them fall, take the pain and move on. We are just feeding entities that are working under a failed business model.

[leveymg]

3. Problem with AIG is that its a huge China-based market-maker for Credit Default Swaps (CDS) - a lot

of people in DC and on the Street think that AIG needs to be kept afloat to sustain the CDS market and those institutions that bought heavily into them. http://www.nakedcapitalism.com/2008/09/aig-asks-fed-for-help.html Also, AIG was actually established in China by Hank Greenberg, who is to China what Armand Hammer was to the Soviet Union, a primary conduit for Chinese investment and influence in the U.S. See, http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x7095505

The fear is that if AIG goes down the portfolios of some banks and companies that bought CDS are going to implode. They would prefer that the Federal Gov't step in and guarantee these transactions.

The other terror is that unless the Fed keeps pumping money into AIG, the Chinese will pull up stakes in the American economy and the market for US bonds will implode.

I disagree. It makes much more sense to simply cancel both sides of the swaps contracts. Derivatives trading should be regulated and curtailed and some forms, such as naked swaps and pure unregulated third-party speculation by hedge funds, should simply be outlawed. Those institutions that are so over-leveraged and insolvent that they can't restructure their portfolios without AIG's "risk managment" products should be nationalized. As for the Chinese, their position is interlocked with ours. If we go down, they'll be swallowed up along with us, and vis-a-versa. Look at what happened yesterday to HSBC stock traded on the London and Hong Kong exchanges due to mounting losses in Household Finance's mortgage operations, which has resulted in at least $13 billion in losses. Look at what's happened to European exchanges as the American mortgage and middle-income crises spreads outwards to global money centers. We're all tied together. See, http://www.reuters.com/legacyArticle?duid=mtfh65487_2009-03-02_08-18-46_l2128969_newsml&rpc=44&type=marketsNews

HSBC is commonly referred to as the largest bank in Europe, but HSBC is actually the initials of the HongKong Shanghai Banking Corporation, and it was the largest issuer of subprime and endangered Aa mortgages, the massive sell-off of which to Fannie Mae and Freddie Mac (FM/FM) in recent years contributed to the downfall of those government securitized entities. We've already seen with FM/FM what happens when the US Government stepped in during the Bush era to guarantee returns on the US investments of its 2nd largest trading partner. Let the Chinese bail themselves out - they have plenty of reserves, they don't need more U.S. taxpayer money.

The bailout of AIG is more complicated than simply sustaining its insurance operations. AIG should be liquidated and its legitimate insurance operations spun-off. Further bailouts are just throwing money down a bottomless pit until it reaches China.

[URDRWHO]

4. Good post

Yes I know about all you said and agree. For others that may look at this post, my post was to point that AIG was doing A LOT more than just selling some general liability policies.

I think the biggest fear of the USA is the fear that China stops buying new issues.

When I was still in the business (been out since around 1999) I remember being at a meeting and the question was, "what is a derivative?" The answer given was....whatever you want it to be. Wacky unregulated markets are a breeding ground for unbridled greed.

There are businesses out there who are insured by AIG and they would feel more comfortable if the insurance side of AIG was moved off ledger.

[leveymg]

5. Welcome to DU

Your industry knowledge will be valued here.:thumbsup: