AIG's Blackmail Note

In case anyone's wondering what leverage AIG has over the government that lets it pay people bonuses for creating the largest losses in U.S. corporate history, here you are:

Aig Systemic 090309

Comments

[Alex Filonov:]

Outrage about bonuses is stupid: $135 million in bonuses is less than 1/1000 of the money government loaned to AIG.

I think bailout of AIG was a huge mistake. Better option was to take over the company. Sure, I'm against nationalization in most cases, but this case is special. AIG is technically bankrupt, I don't know if it has any ability to repay government loans. On the other hand, AIG bankruptcy will definitely be a total disaster for world financial system. I think nationalization of AIG is the best option right now (of all bad ones).

Mar 16 02:39 PM

[Thadeus Tho...:]

Well then, give me just 1 of that $165 million is what I saw first reported. If it's not such a big amount, what's another million if they give it to me. After all, at least I didn't help screw up AIG. lol

Mar 16 03:00 PM

[Upset Investor:]

Thank God I'm not invested with AIG. Talk about Monopoly. How can one company and its subsidiaries get so large without public notice?? I have to agree that if AIG should fail, the fall out would be catastrophic world wide. What now?? Certainly not millions in bonuses for crooks and idiots while the "little" guy goes down in flames. May the perpetrators rot in hell !!

Mar 16 04:06 PM

[Alex Filonov:]

The company is not that big. The problem is that it wrote a lot of credit default swaps, total amount is unknown but probably in trillions. AIG can't possibly pay their obligations on those swaps, that's why it needs government support. Technically, AIG is bankrupt, but if it declares bankruptcy, world's financial system is in grave danger.


On Mar 16 04:06 PM Upset Investor wrote:

> Thank God I'm not invested with AIG. Talk about Monopoly. How can
> one company and its subsidiaries get so large without public notice??
> I have to agree that if AIG should fail, the fall out would be catastrophic
> world wide. What now?? Certainly not millions in bonuses for crooks
> and idiots while the "little" guy goes down in flames. May the perpetrators
> rot in hell !!

Mar 16 04:54 PM

[mr freddo:]

My favorite quote:

"Insurance is the oxygen of the free enterprise system."

I don't doubt that much of what AIG says is true. Their demise would be a calamity for the financial system. The question is:

1. Are we headed there anyway so why not save our taxpayer money to help build the newer, saner, more regulated system.

2. Why can't the government force a prepackaged type of bankruptcy to break free from some of these boneheaded employment contracts.

Maybe that is throwing the baby out with the bath water but it is completely unacceptable to reward these executives in any way for a job well done when they blew up the company and the financial world with their outrageous behavior.

Why don't we just breeze a tax change through congress that says if you work for AIG and you received a bonus, your tax rate on the bonus is 100%.

Also, for shame Mr. Paulson, for shame. You engineered this TARP bale out with great secrecy and now we know why. It should have been called CRAP for Crony Asset Protection act.

Mar 16 05:01 PM

[Whitehawk:]

AIG is indeed committing economic blackmail against the U.S. gov't. The board should be forced to resign immediately and the "special interest" links that led to the original bailout should be put on notice that this sort of extortion will not be tolerated from taxpayers.

Many of us have managed our personal and business risks throughout this crisis without handouts. Many employers have had to make the tough choice of letting go employees or renegotiating their terms without handouts. AIG should now be forced to make the same tough decisions as everyone else.

Mar 16 05:02 PM

[Jackson Cash:]

Get rid of AIG, crash and burn baby.

Let the banks go #uck themselves, as for the little guy, he'll be okay, always has.

I encourage every single consumer to withdraw their money from banks, and do not spend a dime.

Mar 16 05:11 PM

[bthomas:]

What is a "life"(is that the same as life policy) policy and why are there 19 trillion in face value on 375 million policies in the U.S.? These numbers are directly from this report on page: 4. Or is it 1.9 trillion in life policies to 81 million as it says on page: 9? Writer? Which is it typo? Double speak? If they don't know why are they still in charge of this company? Who needs terrorists when we have AIGFP. Talk about PONZI these guys got everybody.

Mar 16 05:27 PM

[HCSKnight:]

Hmmmm, Paul is this real? Seems like an internal AIG document...

HCSKnight

Mar 16 05:28 PM

[Between The...:]

Great info, and a surprisingly easy and interesting read. It does read very much like a threatening legal letter, but with much more accessible prose (nothing new about having to talk down to politicians).

One interesting note: one of the most stupid things AIG did was make bad bets backed by its AAA rating, with special provisions to allow the buyer of AIG derivatives to receive immediate payment/collateral were a ratings downgrade to occur (it was considered an "event of default"), though no actual losses need be booked. This set AIG up for the mother of all liquidity squeezes, because suddenly these special provisions became due on "1.6T in notional derivative exposure". AIG was essentially writing CDS *ON ITSELF*, meaning if AIG had any credit issues, then AIG is the counterparty that would have to pay you. Dead on arrival by any measure, yet AIG sung it to the tune of hundreds of billions in losses.

People keep saying that the AIGFP division doesn't deserve their $175MM bonuses, but I disagree. This robbery is so complex and well-executed that the characters from Ocean's Eleven would be looking for pointers, and I think we (taxpayers of USA) should reward a job well done.

Mar 16 06:00 PM

[Boone:]

Wow! It sounds like AIG is the keeper of all the antimatter and without them, total annihilation. First, make sure we don’t leave any astronauts stranded in orbit then, pull the plug for a quick reset and see what happens. I’m pretty sure the earth will continue to rotate, the sun will continue to rise and man’s instinct for survival, cooperation and problem solving will carry the day…or, we will have a mass extinction event leading to the emergence of the next level of intelligent life. Either way, this kind of insanity will be purged from the human race.

Mar 16 06:38 PM

[GainesRS:]

AIG's arrogance is nothing short of appalling. It appears as if their attitude was to take nearly unlimited and undocumented risk due to their size and assumed rescue from the U.S. Gov't.

I normally would never favor nationalization, but given that the government already owns 80% of AIG. This company is basically defunct sans the massive government injections. I say nationalize it and let the government unwind the company in a controlled manner, similar to the RTC in the early 90's.

We then introduce the handsomely rewarded executives to the other branch of the federal government; SEC, IRS, DOJ, FTC. Perhaps these branches can learn more about their business practices. The executives can then spend their bonus on lawyers for the next ten years.

Mar 16 08:44 PM

[Alex Filonov:]

On Mar 16 05:11 PM Jackson Cash wrote:

> Get rid of AIG, crash and burn baby.
>
> Let the banks go #uck themselves, as for the little guy, he'll be
> okay, always has.
>
> I encourage every single consumer to withdraw their money from banks,
> and do not spend a dime.

Great. Now explain how to do it, please. I receive my salary through the bank, pay my mortgage to the bank, pay utility bills through the bank. When I travel, I use credit card issued by the bank to pay for tickets and car rent. There are not many people in this country who can live without banks. And I can't live without eating (any advice on that?), so I need to spend. Besides, climate in Minnesota, as well as local customs, don't allow me to walk naked outside of my house, so I need to buy clothing once in a while.

Sorry, if you live, you need banks. Or credit unions, which is essentially the same.

Mar 16 10:58 PM

[zalo:]

By paying bonuses to the team that bankrupt the company, AIG is jeopardizing its future businesses by alienating the american consumer against them.

The american government has to speed up the divestment of the company into sub-parts. The government should hold the division that generates the systemic risk, while cleaning up the other businesses. Even if these last are not sold right away, they must be separated at once and have their names changed so that they don´t carry the AIG stigma.

The systemically risky division can then be have its management reestructured. Kick out those guys that have received bonuses unappropiately.

Mar 16 11:47 PM

[Moon Kil Woong:]

I always wondered why shareholders of banks and insurance companies don't have any rights to see critical financial information like total derivatives positions, percentage of AAA bonds that are only AAA due to CDS or other counterparty guarantees, etc. It is funny that even with the government owning 80% of AIG they can't control bonuses, their executives, or their maligned operations.

It sure doesn't give shareholders a lot of hope reforming other companies does it?

Blackmailing counterparties after failing to blackmail the US government isn't a very bright move on AG's part. Even though banks did a good job of blackmailing the US government AIG keeps forgetting it's not a bank.

The odds AIG pulls through this are dropping to 0. The reason is simple. What is the likelihood you will buy an annuity from AIG?

Mar 17 12:01 AM

[BM1087:]

Maybe we should pat them on the back as they are led away in handcuffs!


On Mar 16 06:00 PM betweenthenumbers wrote:

> Great info, and a surprisingly easy and interesting read. It does
> read very much like a threatening legal letter, but with much more
> accessible prose (nothing new about having to talk down to politicians).
>
>
> One interesting note: one of the most stupid things AIG did was make
> bad bets backed by its AAA rating, with special provisions to allow
> the buyer of AIG derivatives to receive immediate payment/collateral
> were a ratings downgrade to occur (it was considered an "event of
> default"), though no actual losses need be booked. This set AIG up
> for the mother of all liquidity squeezes, because suddenly these
> special provisions became due on "1.6T in notional derivative exposure".
> AIG was essentially writing CDS *ON ITSELF*, meaning if AIG had any
> credit issues, then AIG is the counterparty that would have to pay
> you. Dead on arrival by any measure, yet AIG sung it to the tune
> of hundreds of billions in losses.
>
> People keep saying that the AIGFP division doesn't deserve their
> $175MM bonuses, but I disagree. This robbery is so complex and well-executed
> that the characters from Ocean's Eleven would be looking for pointers,
> and I think we (taxpayers of USA) should reward a job well done.

Mar 17 12:26 AM

[optionsgirl:]

"Know what AIG stands for? And it's gone..." Jay Leno, Tonight Show

Here was the problem: AIG couldn't print fiat currency, so they had to go to the Federal Government, the ultimate underwriter with empty coffers.

$35 Billion went to pay off foreign banks, Deutsche Bank among them.

Mar 17 12:50 AM

[1worldcurrency:]

165 million in bonuses
12,900 million direct to Goldman Sachs

Mar 17 03:02 AM

[expat in China:]

It is very dangerous to your health to accept a bonus at this time. It would take minutes for the names to get out into the public domain.

There was just to much damage to normal and not so normal men, women and organized business over the last year.

Greed is usually punished one way or another!

Mar 17 03:49 AM

[An American...:]

AIG failure? Great!

Let the smart insurance companies rush in and take over the business. I have a life insurance policy with AIG - I'd gladly switch for similar terms and conditions - any takers?

If insurance is the "oxygen of the free enterprise system" then why the hell are they mixing it with carbon dioxide? It's too important to screw up!

Insurance and investments should be separated, much like banking and investments should be separated -- shame on the repeal of the Glass-Steagall Act of 1932 by the 1999 Financial Services Modernization Act signed by Clinton!

Mar 17 07:21 AM

[tedstr:]

I am offering a CDS on my mortgage debt. Buy now, I just lost my job. The price is going up.

Mar 17 07:29 AM

[currency x com:]

Bonus.. in normal cases, you get a bonus when you realise something good. Overall the AIG guys did not realise anything positive as I see it.. so there should be no bonuses. Simple as that.

How much costs do they have on property, their own, like offices? Why not reduce some of that from those millions? "bonus" money spent better.

Mar 17 08:22 AM

[MichaelJ007:]

My ex-girlfriend worked at IndyMac and now works at AIG... she's my ex b/c the b!tch destroys everything she touches and now I finally have my proof. ha ha.

Mar 17 08:44 AM

[William Cowie:]

Interesting: lots of outrage and not one single manager is getting fired.

If Obama is so outraged over this, why doesn't he fire someone? I guess politicians are not used to fire people. They just throw them under the public opinion bus. The business people are now figuring this out: Take a million dollar bonus, endure the heat for a week or so, and keep the money. Until a CEO gets fired over ill-advised bonuses, expect this all to continue...

Mar 17 09:11 AM

[Tradememe:]

This problem started a long time ago when companies were allowed to grow so big that their failure could cause a systemic problem. Now, it's too late. We need to make sure the company survives and then it can be broken into smaller units that would no longer be a systemic risk to the economy.

Mar 17 10:17 AM

[Larrysyr:]

I don't understand why bankruptcy can't be an option. I thought that large corporations insulated their various components through corporate structures which keep the liabilities of separate components separate. When one division goes down, the rest can continue.

If AIGFP goes under, why would that affect the life, property/casualty, and other legitimate divisions?

This memo smells fishy.

And I don't like fish.

Mar 17 10:39 AM

[happenstance9:]

Systemic risk to the ECONOMY? This situation is a systemic risk to the United States Constitution! AIG is acting in open defiance, indeed forthright rebellion, against both the executive and legislative branches of the federal government. This is not a fraud on the part of AIG. It is a seditious rebellion. Maybe the "outside lawyers" will figure out that if AIG and counsels break the constitutional authority of the federal government then the judicial branch will be powerless to enforce these seditious contracts. As well, maybe the congress will stand tall and forget about the economy debacle and concern themselves with the constutional debacle.

Mar 17 10:46 AM

[nova:]

We all were told BIG scary stories:
- Saddam was about to nuke the USA (it was a big lie)
- Terrorists were about to do something really terrible. We had supper RED-alerts (it were lies)
- Paulson and Congressional leaders told us really horror stories of horrendous consequences if the $750B-bailout package would not be approved immediately (it was a big lie)

Now, we were told about a TERRIBLE catastrophe to be about to happen if AIG and Detroit are not saved.

Well, just may be, we have nothing to fear except a fear itself.

Let put AIG and Detroit through regular bankruptcy proceedings, clean up all this mess, and live happily after.

Mar 17 10:47 AM

[FE812:]

I understand this sentiment. It's easy to fall into thoughts of government stepping in to fix all these problems and punish the people who "seem" to be rewarding themselves for failure etc.. But PLEASE ladies and gentlemen be careful of it. Ideas like those in this comment are a very slippery slope. To me the thought of any member of government, especially one as powerful as the President dictating who is and is not employed in a private company is scary as hell. I don't care how much of AIG the government owns, I don't care how much of my tax money goes to pay bonuses for their people, big and small. The important thing at this late stage in the game is to keep governments far reaching hand out of as much of the private sector as possible!

I think we can all agree, once government finds it's way into something ... It is very hard to get it back out.


On Mar 17 09:11 AM William Cowie wrote:

> Interesting: lots of outrage and not one single manager is getting
> fired.
>
> If Obama is so outraged over this, why doesn't he fire someone? I
> guess politicians are not used to fire people. They just throw them
> under the public opinion bus. The business people are now figuring
> this out: Take a million dollar bonus, endure the heat for a week
> or so, and keep the money. Until a CEO gets fired over ill-advised
> bonuses, expect this all to continue...
>
>

Mar 17 11:29 AM

[El Judtih:]

I can hear people humming the Marseillaise on the street outside my office.

Mar 17 12:12 PM

[BobK:]

$93 billion was funneled through AIG to bailout banks. This is a scam whereby the Feds, and ultimately the U.S. taxpayer, recapitalizes US and European banks and receive nothing in return. The $11.9 billion pumped into Soc Gen amounted to 70% of Soc Gen's market cap. The $11.8 billion pumped into Deutsche Bank amount to 65% of DB's market cap. The $12.9 and $12 billion that went to Goldman and Bank of America amounted to around 25% the market cap of each.

AIG is the straw man. AIG has been propped up by the world's financial elite in order to channel U.S. dollars into the world banking system. By using the straw man as a conduit, banks around the world receive the capital and give up no ownership.

Mar 17 12:58 PM

[_Jeremy_:]

I think NOT being outraged about AIG's $135 million in bonuses is stupid. Where I come from $135 million is a lot of money. When you really add up the cost to the American taxpayer and see the ripple effect of what the gov't will have to do(tax) to recoup all that bailout money, yes, outrage is both a reasonable and justifiable conclusion, Alex. And instead of the pointless and mindless little comments about Socialism and Communism, why doesn't someone use some BASIC EFFING LOGIC on this one and explain to me why execs at a company who managed to acheive the largest loss in the history of corporations and who is draining the US Treasury dry with their extorted bailouts deserve BONUSES? Really??


On Mar 16 02:39 PM Alex Filonov wrote:

> Outrage about bonuses is stupid: $135 million in bonuses is less
> than 1/1000 of the money government loaned to AIG.
>
> I think bailout of AIG was a huge mistake. Better option was to take
> over the company. Sure, I'm against nationalization in most cases,
> but this case is special. AIG is technically bankrupt, I don't know
> if it has any ability to repay government loans. On the other hand,
> AIG bankruptcy will definitely be a total disaster for world financial
> system. I think nationalization of AIG is the best option right now
> (of all bad ones).

Mar 17 01:04 PM

[Thadeus Tho...:]

Actually, this is all academic. When the Chinese start calling in all the loans and other financial instruments it has with the US, and the US can't pay it back in a timely fashion; the Chinese will just take over all the outstanding assets. Then they will fly over here and confiscate all the ill gotten bonuses, assets, fortunes, our homes and all the property and money of us all.
I have my tongue planted in my cheek on this one folks, but not very firmly.

Mar 17 02:23 PM

[muvaphknmega:]

A manager can be fired but then he'll walk away with probably more than he would've by staying. Got to love the "golden parachute"


On Mar 17 09:11 AM William Cowie wrote:

> Interesting: lots of outrage and not one single manager is getting
> fired.
>
> If Obama is so outraged over this, why doesn't he fire someone? I
> guess politicians are not used to fire people. They just throw them
> under the public opinion bus. The business people are now figuring
> this out: Take a million dollar bonus, endure the heat for a week
> or so, and keep the money. Until a CEO gets fired over ill-advised
> bonuses, expect this all to continue...
>
>

Mar 17 03:10 PM

[dcb:]

AIG isn't blackmailing the government. You can't blackmail someone who is in on it. This is a way to put money into the hands you want it to be in, but do it through a back door. When are people going to wake up. When you start to look at all the pieces they only fit together with this view point. I never start out thinking this way, but when all the available evidence points exactly the same way it's the conclusion you must reach. I wrote tot the times today and mentioned that in the war on terror we had a white house that manufactured the information that got us into Iraq, they couldengage in domestic spying operations, they could hold people without trial for as long as they wanted. Yet for some reason in the war on financial collapse we now have a white house that can't get back bonus money or even invalidate derivative contracts, ??? Think about it.

Mar 17 06:12 PM

[monday1929:]

Live simply, boycott the thieves economy as much as you can. Help your neighbors and friends.


On Mar 16 05:11 PM Jackson Cash wrote:

> Get rid of AIG, crash and burn baby.
>
> Let the banks go #uck themselves, as for the little guy, he'll be
> okay, always has.
>
> I encourage every single consumer to withdraw their money from banks,
> and do not spend a dime.

Mar 18 08:07 AM

[optionsgirl:]

No, you are off by a few zeros. 12+ Billion to GS, not million.


On Mar 17 03:02 AM 1 world currency wrote:

> 165 million in bonuses
> 12,900 million direct to Goldman Sachs

Mar 19 11:37 AM