AIG Needs Dissolving

The federal government's $180 billion effort to prop up American International Group (AIG) has worked, averting an even bigger financial catastrophe. Now it's time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government's massive support.

And the report says it's "unclear" whether AIG will ever pay back the $121 billion in government assistance that's still coursing through its balance sheet.

The GAO report should provide the administration with all the ammunition it needs to get tough with AIG. The report's conclusions should stiffen the spine of regulators in their dealings with Robert Benmosche, AIG's new $9 million chief executive.

The former MetLife chief executive seems to act as if he has taken over a financial company that's simply made one or two bad decisions -- not one that nearly brought the global economy to its knees.

Benmosche's plan to take his sweet time in selling off AIG's assets might make sense if the insurer could someday stand on its own without the government's help.

But the GAO report raises serious doubt about whether AIG will ever be self-sufficient again, noting that "the company continues to rely heavily on the federal government as its source of liquidity and capital."

Worse, Benmosche is taking counsel from Hank Greenberg, AIG's former longtime CEO, whose only concern is protecting his still significant equity stake in the de facto taxpayer-owned insurer.

Now Greenberg is trying to get Representative Edolphus Towns to take up his cause of restructuring AIG's bailout package to make it easier for the insurer to live on.

But Towns, the chairman of the House Committee on Oversight and Government Reform, who once sat on the board of subprime mortgage lender MortgageIT, should not be taking Greenberg's calls either.

It's odd that the Brooklyn Democrat is taking a tough stance with Bank of America (BAC) over its questionable acquisition of Merrill Lynch, but is fielding ideas from the man who oversaw AIG's transformation into a financial behemoth.

The time for kowtowing to Greenberg must end. All this is doing is giving false hope to those investors who've been snapping up AIG's shares on the belief the insurer can turn itself around. AIG can't and it won't.

With the worst of the financial crisis now past, it's time to break up AIG and move on. AIG rightfully deserves to join Bear Stearns and Lehman Brothers on the ash heap of history.

A dissolution of AIG would serve as an important reminder to Wall Street and giant banks around the world, that there's a price to be paid for becoming too big to fail -- and then failing.

Comments

[blogbuster:]

Seriously, does the world need another overworked, generic piece on AIG calling for torch and pitchfork marches?

The government support works, which is good, but the relative fragility of AIG bothers you so Uncle Sam should rush in with the machete and... do what? Dissolve the company? Lose more taxpayer money in firesales? Raise fear and uncertainty on the street about economic stability and the government's fickleness? Encourage hordes of marginal "journalists" to preach politics from the ill-informed blog pulpits?

And of course you are qualified to attest to Benmosche's subjective, personal, and undisclosed views of the severity of AIG's situation. Same for Greenberg- surely he is just about greed, as you are clearly just about seeing your print on a website, gleefully counting misguided clicks and traffic like a school girl. Yeah, Matthew, you have it nailed. Clearly. And Towns? How odd indeed! To think that a Congressman involved in determining AIG's fate might actually be open to suggestion from informed parties about how to proceed so that everyone can win in the long term.

I think Wall Street and the public have enough reminders of the perils of past financial problems-- we don't require fresh burnings-at-the-stake, rather fresh voices and views. Open-minded, balanced, fair, and critical voices. The only thing we really need to pitch to the ash heap are vitriolic tripe like your article.

Sep 22 07:25 PM

[Jasper M:]

AIG certainly needs dissolving . . . and so does the guy who set up the scheme that put it in peril. Where's a Bobnd villain when you need one?

Sep 22 09:17 PM

[dax:]

Sorry Buster

AIG is an embarrassment, and should be delisted, its well working pieces parsed out and the waste written off.

Its ugly, painful and the capitalist way


On Sep 22 07:25 PM blogbuster wrote:

> Seriously, does the world need another overworked, generic piece
> on AIG calling for torch and pitchfork marches?
>
> The government support works, which is good, but the relative fragility
> of AIG bothers you so Uncle Sam should rush in with the machete and...
> do what? Dissolve the company? Lose more taxpayer money in firesales?
> Raise fear and uncertainty on the street about economic stability
> and the government's fickleness? Encourage hordes of marginal "journalists"
> to preach politics from the ill-informed blog pulpits?
>
> And of course you are qualified to attest to Benmosche's subjective,
> personal, and undisclosed views of the severity of AIG's situation.
> Same for Greenberg- surely he is just about greed, as you are clearly
> just about seeing your print on a website, gleefully counting misguided
> clicks and traffic like a school girl. Yeah, Matthew, you have it
> nailed. Clearly. And Towns? How odd indeed! To think that a Congressman
> involved in determining AIG's fate might actually be open to suggestion
> from informed parties about how to proceed so that everyone can win
> in the long term.
>
> I think Wall Street and the public have enough reminders of the perils
> of past financial problems-- we don't require fresh burnings-at-the-stake,
> rather fresh voices and views. Open-minded, balanced, fair, and
> critical voices. The only thing we really need to pitch to the ash
> heap are vitriolic tripe like your article.

Sep 22 11:47 PM

[pelican:]

I think AIG stock is worthless but I have to agree with blogbuster if I look at this from a taxpayer's point of view. AIG owes $80b and if it means taking a few years to get as much of that as possible back, then so be it. The GAO report said nothing that nearly everyone already knew: AIG may not be able to repay everything. But why immediately liquidate now? From an operational standpoint things are improving - as the report noted - and avoiding fire sales seems like a reasonable strategy. So why not wait?

A year ago the AIG bailout was greeted with derision almost to a person. One year later even the author of this article recognizes it probably averted a bigger financial meltdown. If AIG was liquidated with great speed now I guarantee the media would jump on it pointing out that by not methodically selling assets, the government could have saved taxpayers billions. This article got a log of headlines today because it makes it sound like AIG continues to be a sinkhole, which is not the case anymore. At this stage I don't think the government needs to "get tough" if that simply means limiting the potential repayment on those loans. The author says we should because it would "serve as an important reminder to Wall Street and giant banks around the world, that there's a price to be paid for becoming too big to fail -- and then failing." Well, I think its a little too late for that now. Besides, I think in many ways prices have already been paid. Regardless, as a taxpayer, I want as much money back from AIG as possible.

Disclosure: I bought put options because I think AIG will eventually be sold off completely with no value left to shareholders.

Sep 23 12:46 AM

[Mike from NYC:]

According to other articles I read it appears that AIG may need more money as it has cash flow problems and that renegotiating its debt to the USA will not solve this problem alone - it appears that AIG needs more money to keep its ugly head above water.

As horrible as it sounds, AIG should just auction off its businesses and be done with it. No amount of time will ever help AIG become profitable again especially if its credit ratings are downgraded and it must set aside more capital to meet its new capital requirements. Probably the US has interfered with the credit ratings and not caused AIG be downgraded.

They caused this problem to themselves and Greenberg was a part of it, despite whatever BS he says to the contrary.

Basically AIG is just a dead horse being kept alive by any means necessary and the US should just pull the plug, lick its wounds and move on. The world will survive without AIG.

Sep 23 09:11 AM

[Mike from NYC:]

There are no winners here, certainly not the taxpayer who will lose a lot of money no matter what happens and how long we keep AIG alive and certainly not AIG because of their hubris and stupidity.


On Sep 22 07:25 PM blogbuster wrote:

To think that a Congressman
> involved in determining AIG's fate might actually be open to suggestion
> from informed parties about how to proceed so that everyone can win
> in the long term.
>

Sep 23 09:18 AM

[Duude:]

A dissolution is entirely the worse thing to do. While a 100% payback of AIG's debt to taxpayers may be almost impossible, I want every dime back that we could possibly receive. The insurance companies under AIG are actually quite valuable but can only be sold at a discount currently due to both the current economic environment and the perception that AIG MUST sell now. If we're going to sell out now, we're guaranteeing as little money as possible. If we sell this out now, we ought to sell out our ownership in GM and Chrysler now as well. While it will be almost impossible to get back 100% of taxpayer money with AIG, its absolutley certain we won't get it back with Chrysler and GM. The amount we've dumped into these two losers is more than they've been worth in their hey day, and they'll never get their before. Additionally, its certain the automobile makers will need more money still.

Sep 23 09:22 AM

[birder:]

I doubt the taxpayers will ever see much of largess returned. Heck, the company had not made that much money for the past 15 years.

Sep 23 09:23 AM

[Drew Horn:]

AIG is a large symbol of the main complaint have with the financial industries. It was allowed to become a hybrid casino and a legitimate insurance company. It is the best example of why the "too big to fail" issue needs to be resolved. Selling AIG's assets is the only reason to keep it alive but, as with most financial transactions, timing is everything.

Each part of this conglomerate is different and, as a taxpayer, I hope management has the skill to optimize the selling prices. The greatest danger is that management will try to wait out the dissolution clock and try to keep AIG alive in the long run. From managements view, that makes sense, especially if the CEO, CFO, etc are skimming millions every year it survives(they have no skinny in the game). I suggest that their pay be cut by 50% a year for two years and after that (with a new team), require that those that failed to sell it give back their prior pay at the rate of 33% a year until all assets are sold. That's a real incentive plan!

Sep 23 09:39 AM

[just-me:]

i wish the media would get the numbers correct. First you state the government is owed $180B by AIG, then a few lines later you say its $121B. Those numbers far exceed the amount that AIG actually owes the Fed and instead represent the maximum amount that AIG could potentially tap. The current amount (while still tremendously large) is in the $60B area. YEs...$60B is a huge number, but try to get your "reporting" somewhat accurate, or at least in the ballpark. When the first 3 paragraphs are so factually incorrect, whatever else you state doesnt matter....because I stopped reading. Do the people a service instead of passing on misinformation.

Sep 23 09:56 AM

[carriejo:]

AIG has served it useful purpose, GS has been saved, bonuses will be paid and campaign contributions have been paid.

Sep 23 10:11 AM

[Larry Cavalena:]

Too big to fail should mean too big to exist. There is a lot to be said about the Sherman Anti Trust Laws. Expecting the American Taxpayer to underwrite losses resulting from reckless corporate behavior is just plain wrong.

Sep 23 10:19 AM

[Clean CNG V...:]

Obama will need AIG to administer it's National Health Care. I believe that has been the plan from the onset. The history of AIG CEO and his Son's associates tells the story.

AIG will become the Nation's Health Insurer, and they are also the company that has the most problem with paying a claim. They start the problem and then come to the rescue.

Sep 23 10:44 AM

[grayfox:]

Taxpayer monies were rushed to AIG to keep it in the air, otherwise it would have crashed on Goldman's house and both would have gone up in flames. Now that Goldman has been saved it is time to land and disassemble this disaster known as AIG before it goes out of control again. In the mean time, AIG is consuming useless funds to compete against others in the industry who have played by the rules.

Sep 23 11:34 AM

[Econ 101:]

This reminds me of a scene from the Wizard of Oz. Where the guy says "Dont pay any attention to the man behind the curtain."

AIG should have been broken up a year ago. It is a front organization ( at least the part that insured GS) for fleecing the US taxpayers and, along with others on Wall Street, prime candidates for indictment under the RICO statutes.

User 43089 you are soooo right!

Sep 23 12:02 PM

[Econ 101:]

Someone said it better:

www.rollingstone.com/p...

Sep 23 12:04 PM

[1uncle:]

The mergers that allowed this should never have happened. There were anti-trust laws. Follow the money.

Sep 23 12:14 PM

[jimmy46:]

t's odd that the Brooklyn Democrat is taking a tough stance with Bank of America (BAC) over its questionable acquisition of Merrill Lynch, but is fielding ideas from the man who oversaw AIG's transformation """""

NOT ODD AT ALL, HE'S ON THE TAKE LIKE THE REST OF THE BUMS IN WASH-DC

Sep 23 01:27 PM

[Joe Snow:]

So, what? AIG is dissolved and what happens to the billions of dollars our government went into debt (all money comes from debt) for? Do we just have a short sale, take what we can, then just forget about the rest? Those bills still have to be repaid whether we got our money back from AIG or not. The only hope of seeing any of that money again is to try to get the company back on it's feet long enough to repay, then let it fail when it becomes a much smaller and less systemically risky entity.

Sep 23 01:35 PM

[ERCaptain:]

AIG did this to themselves. The incredibly arrogant and poor leadership offered by Fuld led this company into this situation. Do not listen to the defenders of AIG that point to someone else being at fault.
AIG is a painful reminder of a poorly managed regulatory environment and terrible corporate governance. The gov may have done what it needed to do to spare the economy the downside of locked up capital markets, but now that things are stabilizing, AIG must be broken up, sold off, and forgotten.

Sep 23 01:38 PM

[ERCaptain:]

Sorry, Fuld was CEO of Lehman (who was just as bad). I should have mentioned Libby and Greenberg.


On Sep 23 01:38 PM ERCaptain wrote:

> AIG did this to themselves. The incredibly arrogant and poor leadership
> offered by Fuld led this company into this situation. Do not listen
> to the defenders of AIG that point to someone else being at fault.
>
> AIG is a painful reminder of a poorly managed regulatory environment
> and terrible corporate governance. The gov may have done what it
> needed to do to spare the economy the downside of locked up capital
> markets, but now that things are stabilizing, AIG must be broken
> up, sold off, and forgotten.

Sep 23 01:41 PM

[perremon:]

Bloggbuster, Pelican, Duude - KODO's. Let's hope cooler heads prevail. I want my tax payer money back too. Let's look at anti-trust laws though. No single monolithic business should have us all held by the short hairs. Here is the taproot root of this mega problem.

Sep 23 03:00 PM

[perremon:]

Meant KUDO's typo

Sep 23 03:01 PM

[LaVern Isely:]

I agree with Matthew Goldstein that AIG should be broken up. With the shape the economy is in and the debt getting worse every day, there's no way we can support a failing industry. If the federal government wanted to raise the federal income tax on the wealthy, it would help but up to now, I see no attempt to do so. They keep hiding their money OFFSHORE and demanding their huge bonuses. Also, there's no attempt to REGULATE HEDGE FUNDS or TOXIC DERIVATIVES.
Yours truly, LaVern Isely, Overtaxed Middle Class Taxpayer, Public Citizen and AARP Member

Sep 23 04:03 PM

[Crude Oil T...:]

The government very well could throw AIG under the bus. It has served it's purpose, averting disaster at Goldman Sachs. That is the "only" reason they were saved.

Sep 23 04:27 PM

[FinFlaneur:]

Just-Me: appreciate your desire for facts. Also looking for insights on AIG's asset quality and restructuring options. Willing to compensate an advisor for a brief call with a client. Any ideas?

On Sep 23 09:56 AM just-me wrote:

> i wish the media would get the numbers correct. First you state
> the government is owed $180B by AIG, then a few lines later you say
> its $121B. Those numbers far exceed the amount that AIG actually
> owes the Fed and instead represent the maximum amount that AIG could
> potentially tap. The current amount (while still tremendously large)
> is in the $60B area. YEs...$60B is a huge number, but try to get
> your "reporting" somewhat accurate, or at least in the ballpark.
> When the first 3 paragraphs are so factually incorrect, whatever
> else you state doesnt matter....because I stopped reading. Do the
> people a service instead of passing on misinformation.

Sep 24 05:24 AM

[sod:]

Golly! did you mean all of that?

I'm not sophisticated enough to follow the argument that well, but my general feeling, from news sources, is that the financial sector has been arrogant to the point of abusive to the administration, congress and the regulatory agencies. Imagine, taking tax payer money and lobbying congress, distributing large bonus to employees, and refusing to consider even the mildest forms of reform. Mathew is correct in stating that they financial sector must be brought down a peg or two.,


On Sep 22 07:25 PM blogbuster wrote:

> Seriously, does the world need another overworked, generic piece
> on AIG calling for torch and pitchfork marches?
>
> The government support works, which is good, but the relative fragility
> of AIG bothers you so Uncle Sam should rush in with the machete and...
> do what? Dissolve the company? Lose more taxpayer money in firesales?
> Raise fear and uncertainty on the street about economic stability
> and the government's fickleness? Encourage hordes of marginal "journalists"
> to preach politics from the ill-informed blog pulpits?
>
> And of course you are qualified to attest to Benmosche's subjective,
> personal, and undisclosed views of the severity of AIG's situation.
> Same for Greenberg- surely he is just about greed, as you are clearly
> just about seeing your print on a website, gleefully counting misguided
> clicks and traffic like a school girl. Yeah, Matthew, you have it
> nailed. Clearly. And Towns? How odd indeed! To think that a Congressman
> involved in determining AIG's fate might actually be open to suggestion
> from informed parties about how to proceed so that everyone can win
> in the long term.
>
> I think Wall Street and the public have enough reminders of the perils
> of past financial problems-- we don't require fresh burnings-at-the-stake,
> rather fresh voices and views. Open-minded, balanced, fair, and
> critical voices. The only thing we really need to pitch to the ash
> heap are vitriolic tripe like your article.

Sep 24 09:15 AM