American International Group

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American International Group, Inc. (AIG) described itself as the "leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed in the U.S. on the New York Stock Exchange as well as the stock exchanges in London, Paris, Switzerland and Tokyo," its website states. [1]

In 2011, AIG reporterd $38,990,000,000 in total revenues.[1]

Ties to Pete Peterson's "Fix the Debt"

The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem."

This article is part of the Center for Media and Democracy's investigation of Pete Peterson's Campaign to "Fix the Debt." Please visit our main SourceWatch page on Fix the Debt.

About Fix the Debt
The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Through a special report and new interactive wiki resource, the Center for Media and Democracy -- in partnership with the Nation magazine -- exposes the funding, the leaders, the partner groups, and the phony state "chapters" of this astroturf supergroup. Learn more at PetersonPyramid.org and in the Nation magazine.


Financial crisis and the bailout

In the September 2008 financial crisis AIG suffered a liquidity crisis[2]. On September 16, 2008, the Federal Reserve exchanged a warrant for the purchase of 79.9% of AIG stock for an $85 billion line of credit[3]. In May 2009, the government increased available support by as much as $70 billion, plus a $60 billion credit line and $52.5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182.5 billion[4].

Later it came to light that $90 billion of the money provided to AIG by the government went directly to banks, including non-American banks, including Goldman Sachs ($12.9 billion), France's Societe Generale ($11.9 billion), Germany's Deutsche Bank ($11.8 billion), and Britain's Barclays PLC ($8.5 billion)[5]. The bailout of AIG was largely a bailout of the banks and others that had made credit default swap bets with AIG, including Goldman Sachs.

Contribution to the crisis

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AIG had taken on 440 billions of dollars in credit default swaps (CDS) with little or no reserves with which to make good on their liabilities. Along with having insufficient reserves the company had not protected itself by being on "both sides" of the CDS transaction, as other companies did, it only sold them.[6] When the real estate prices began to fall, leading to the "mortgage meltdown," AIG was unprotected and owed the entire amount. The amounts owed to other banks inside and outside of the United States was sufficient to bring the entire world financial system into default. Bond CDS obligations totalled $440 billion[7], $80 billion in mortgage-backed securities[8].

Bailout amounts

  • Initial $85 billion September 16, 2008.
  • May 2009: $70 billion plus $60 billion line of credit plus $52.5 billion to purchase mortgage-backed assets

Bailout pass-throughs

In the months leading up to its public collapse in September 2008, AIG tasked Elias Habayed, chief financial officer for the AIG division that oversaw AIG Financial Products (the unit that had sold the swaps to the banks), to attempt to negotiate with the banks to accept 60 cents on the dollar, but that plan was scuttled when the Federal Reserve Bank of New York opened an $85 billion credit line for AIG and bought 77.9 percent of the company.[9] The government's financial stake in and control of AIG increased from that point: "The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion."[9] Timothy Geithner, then president of the Federal Reserve Bank of New York, took over Habayed's negotiations, and the effort to negotiate down AIG's obligations to its counterparties was supplanted with a plan to pay 100 percent of those obligations: "Geithner's team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps.... Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar."[9]

When Bloomberg reported in October 2009 the change in approach directed by Geithner, "[l]awmakers and financial analysts critical of the payouts say it amounted to a back-door bailout for big banks," while unnamed Fed officials defended the practice in the pages of the Washington Post by arguing that AIG lost its ability to demand concessions because the government takeover removed the threat of impending bankruptcy.[10]

On November 17, 2009, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released a report[11] saying that Timothy Geithner -- then the head of the Federal Reserve Bank of New York and now the nation's Treasury Secretary -- was responsible for billions of tax dollars in overpayments to major Wall Street firms, most notably Goldman Sachs.

From the report,

[T]he refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counterparties, including the emphasis that their participation in the negotiations was purely "voluntary," made the possibility of obtaining concessions from those counterparties extremely remote.

Political influence

Campaign Contributions

Lobbying

The company spent $9,390,000 for lobbying in 2006. In-house lobbyists along with 16 lobbying firms were used, which included Akin, Gump et al, Lesher & Russell, Mayer, Brown et al, and Vinson & Elkins.[14]

Revolving door influence

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Ties to financial regulators

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Profits, bonuses and market value

Executive compensation

As a TARP recipient, AIG's executive compensation came under the purview of Treasury special master for compensation Kenneth R. Feinberg. According to The New York Times', "A.I.G. refused to cancel some pay contracts that fell outside Mr. Feinberg’s purview. At one point, A.I.G. executives expressed frustration with the contracts. A.I.G., they said, was having trouble identifying just who its most highly paid employees were. "[15]

Earnings and bonuses

In March, 2009, AIG paid "retention bonuses" of $165 million, causing a public uproar. Executives promised to return approx. $45 billion of these, but by December, 2009, only $19 billion had been returned.[16]

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Board of Directors

Contact details

70 Pine Street
New York, NY 10270
Phone: 212-770-7000
Fax: 212-509-9705
Web: http://www.aigcorporate.com

Resources and Articles

Featured SourceWatch Articles on Fix the Debt

Related SourceWatch articles

External articles

References

  1. "2011 Annual Report", AIG, February 29, 2012.
  2. Lilla Zuill, "AIG Facing Liquidity Crisis, Seeks $40 Billion Loan from Federal Reserve", Reuters through Insurance Journal, September 14, 2008, retrieved Oct 1, 2009.
  3. Matthew Marnitschnig, Deborah Soloman, Liam Pleven and Jon E. Hilsenrath, "U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up", Wall Street Journal, September 16, 2008.
  4. Alistair Barr, Sam Mamudi & Rex Nutting, "Washington dramatically alters AIG bailout", Marketwatch, November 10, 2008.
  5. "$90B Of AIG's Federal Rescue Went To Banks", CBS News, March 16, 2009.
  6. "Sold Out - How Wall Street and Washington Betrayed America", Consumer Education Foundation, March, 2009.
  7. Adam Davidson, "How AIG fell apart", Reuters, September 18, 2008.
  8. Carol J. Loomis, "Revealed: 15 AIG bailout counterparties", CNN, March 9, 2009.
  9. 9.0 9.1 9.2 Richard Teitelbaum & Hugh Son, "New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers", Bloomberg, October 27, 2009.
  10. David Cho, "N.Y. Fed pushed AIG on contracts," Washington Post, October 28, 2009.
  11. Factors Affecting Efforts to Limit Payments To AIG Counterparties, SIGTARP, Nov. 17, 2009
  12. Pioneers and Rangers, Texans for Public Justice, accessed August 2007.
  13. 2006 PAC Summary Data, Open Secrets, accessed August 2007.
  14. AIG lobbying expenses, Open Secrets.
  15. Louise Story, "Who Gets Paid What," The New York Times, October 21, 2009.
  16. Brady Dennis, AIG executives' promises to return bonuses have gone largely unfulfilled, Washington Post, December 23, 2009.
  17. "Board of Directors", AIG, Accessed February 11, 2013.