Category: Business

So, now the hard part comes re: AIG.

Not the bonuses to the AIG FP folks – but, rather, AIG’s passthrough of billions of dollars of emergency federal funding to “the coffers of several dozen big banks, shielding them from losses.”

And AIG didn’t just pass the billions through to American banks – but “Société Générale of France and Deutsche Bank of Germany, each of which received nearly $12 billion, Barclays of Britain, which received $8.5 billion, and UBS of Switzerland, which received $5 billion.”

The magic phrase: 100 percent on the dollar. Why? Who’s in charge of this debacle, anyway?

Bob O’Brien has a great Stocks to Watch column on Barrons.com this morning titled “Inmates Run The Asylum: The AIG Story“. I particularly enjoyed this part:

Congress said it is upset. Repeat: Congress is upset. Representative Carolyn Maloney said she has been ”asking for this information for months.” And then characterized the disclosure as, effectively, a good start? This is the equal of a guy falling off a 30-story building commenting, as he passed the 20th floor, ‘’so far, so good.”

Well said!

Earlier today, I suggested the sun needed to shine on AIG and its counterparty dealings. Late today, AIG disclosed an initial list of its counterparties – see this NY Times report.

Now that the sun shine has begun peeking through the AIG fog, what do we learn? Essentially, that a significant chunk of the US government’s bailout funding of AIG was passed through in the form of billions of dollars to AIG’s counterparties.

At the top of the list – Goldman Sachs which received $12.9 billion. Next, Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion. Barclays (UK) received $8.5 billion, Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), UBS of Switzerland ($5 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

The article goes on to note that “A.I.G. also named the 20 largest states, starting with California, that stood to lose billions last fall because A.I.G. was holding money they had raised with bond sales.”

On tonight’s 60 Minutes broadcast, Federal Reserve Chairman Ben Bernanke commented about the AIG situation and how it provoked in him the most outrage of any of the issues in this financial crisis. From the transcript:

“Let me just first say that of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG. Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, we had a situation where the failure of that company would have brought down the financial system,” Bernanke said.

Our government – indeed, us – has had to provide over $160 billion in funds to AIG – so that AIG could pay off its counterparties – at full price. It’s absolutely unconscionable how this a) could have ever happened and b) was allowed to continue to operate in this fashion.

Unfortunately, today has been a very sad day for America – among too many others heretofore in this crisis. We finally know a bit about where our bailout money has gone – and it really doesn’t feel very good.

I’m not really sure who’s running the show these days with respect to providing AIG management oversight. The AIG website still lists this board of directors as being responsible for corporate governance. Perhaps they’d like to provide us all a deeper perspective on the current AIG situation? And, why do they feel that Ed Liddy continues to be the right leadership for this firm at this time? How about giving us all an AIG State of the Union message – to the public shareholders who now own 80% of this company?

Frankly, I’m firmly in the camp with our Fed chairman – very angry at how AIG was allowed, by its board and management, to get us all into this ridiculous situation. Lots of difficult questions remain to be answered and many adjustments need made to prevent anything like this happening again in the future.

Wow, there’s a real firestorm spreading among the public following last night’s news about AIG paying hundreds of millions in bonuses to members of its Financial Products team (the group that got them into difficulty).

Watching Twitter this morning was pretty amazing – a steady, real-time stream of complaints and anger at the sheer tone deafness of this action.

Listening to KGO this morning, host Brian Copeland was re-telling the story of how his grandmother got taken to the cleaners by American General, an insurance subsidiary of AIG. Reactions from his listeners were predictably angry.

Meanwhile, the New York Times picked up the theme from a week or two ago – asking again why we still don’t know who the counterparties have been that received billions of the bail-out money the government has provided to AIG. The editorial was blunt:

The secrecy is unacceptable. Taxpayers have a right to know how their tax dollars are being spent.

Gretchen Morgenson writes in her article titled “At A.I.G., Good Luck Following the Money” in the Times today that “the counterparties have received 30 percent of the $170 billion allocated to A.I.G.”

It’s time to let the sun shine in on this mess.