Crime Pays: More on AIG and Its $140 Billion Bailout

[McCamy Taylor]

I. AIG is a Company “Too Big to Fail”. When Was the Last Time We Heard That?



Who gets a bailout and who does not?

Historically, the too big to fail philosophy has been applied erratically, reflective of its political nature: failing airlines were covered with $15 billion in bailouts in 2002. But Enron never saw a dime of federal bailout money.
The pattern that has emerged is clearly political, not economic. Enron's scandals made it politically impossible for the government to bail them out, despite the fact that their collapse hurt American banks, the stock market, and investors.
In contrast, after the terrorist attacks of 9/11, the airlines held immense public sympathy, and it was politically savvy to support them, despite the fact that air travel would have continued in the event of mass scale bankruptcy, albeit at a reduced level. Enron executives got blamed for financial losses following their collapse. The Bush Administration would have taken the heat if airlines began going under en masse.

http://www.reason.org/outofcontrol/archives/2008/10/too_big_to_fail.html

In other words, no matter how big you are, you have to look innocent before you can expect the U.S. taxpayers to fork over billions of dollars to cover your losses. So, if you are the victim of terrorists or someone else’s greed you get money. If you are caught by Sherri Watkins with your hand in the cookie jar, your company fails and you go to jail.

AIG has presented itself to the American public as an innocent insurance giant---think Smokey the Bear---- which wrote policies to cover mortgages which turned out to be toxic. Now, they have an obligation to pay out on those claims. Since people want to believe that their flood, auto and life insurance will be there to protect them in their time of need, they are understandably sympathetic to AIG’s plight. AIG is just a good insurer that got in with a bad crowd----


I. If You Funnel Tax Payer Money to Guilty Companies, Can You Still Claim to Be Innocent?



Last fall, AIG got $85 billion in taxpayers’ money. The executives of the firm proceeded to throw themselves a lavish $440,000 party in California. The Bush administration was so upset

"I understand why the American people would be outraged. I am. It's pretty despicable," Dana Perino told reporters.

http://www.nowpublic.com/tech-biz/aig-gets-37-8-billion-bailout-boost-after-executive-party-scandal

that it went ahead and rewarded them with another infusion of our money , $37.8 billion this time. That is a pretty ballsy thing even for the Bush administration to do. To me, it suggests that AIG was part of a larger scheme that no one in the previous administration wanted to see fail---even if it meant they had to make themselves look like fools by rewarding decadence and waste with more of our hard earned money.

AIG used the money to such good effect paying off selected clients (whom neither AIG nor the Fed will name) for their mortgage backed security related losses at 100 % that it posted a $60 billion loss in the last quarter of last year. The new administration rewarded them for their business savvy by handing out another $30 billion.

http://www.huffingtonpost.com/2009/03/01/aig-to-get-new-30-billion_n_170898.html

http://www.nytimes.com/2009/03/08/business/08gret.html?_r=3&adxnnl=1&ref=business&adxnnlx=1236502889-+AeFgr9ecukV/IrkscDfoQ

http://www.nytimes.com/2009/03/06/business/economy/06insure.html?hp

What have we, the American tax payers gotten so far for our investment of over $140 billion in the insurance company dubbed “too big to fail”? According to the New York Times articles above, AIG has allowed recipients of federal money to escape the transparency that was supposed to accompany this bailout. The clients who have been paid for their paper losses—and paper interest losses--- by AIG have been able to clear their spreadsheets without having to show them to federal auditors first. And they will never have to pay back the U.S. government or share their assets with the taxpayers who helped them weather the financial crisis of their own making---

Did I mention that the Carlyle Group, which was $16 billion in the hole last year, because of its misadventures in mortgage backed securities (for details see my recent journal about the Carlyle Group here http://journals.democraticunderground.com/McCamy%20Taylor/381 ), is now being touted by CNBC as a potential buyer of one of AIG’s assets, their aircraft leasing division? According to CNBC,

The unit, valued at up to $8 billion by analysts, needs a buyer with access to cheap capital and a large balance sheet as it borrows money to buy planes before leasing them out.

http://www.cnbc.com/id/29302042

Now how did Carlyle go from having $16 billion in debt to being flush with cash, in a time when no one else can get any credit?

AIG stops looking so innocent when you realize that they may be funneling bailout money to suspicious companies and investors. You know, companies with criminal records that ordinarily would not be given the time of day by the Fed. Or investors with ties to politicians such as the Bush family. Or key players in the mortgage crisis who are responsible for their own losses and who do not deserve to be rewarded when they have forced millions out of their homes and onto the streets.


III. No One Is Innocent: Crimes of AIG



Here is the letter which AIG sent to the Treasury to persuade them to hand over billions more dollars.

http://abcnews.go.com/images/Business/aig_systemic_090309.pdf

Note how concerned they are about reputation and public trust. Did they have public trust in mind when they

1. Helped Brazilian companies avoid taxes in a scheme with Credit Suisse and UBS? From 2007. Here is a link.

http://www.iht.com/articles/ap/2007/11/07/business/LA-FIN-Brazil-Money-Laundering.php

Police cracking down on rampant tax evasion in Brazil detained 19 people allegedly tied to a money-laundering scheme that involves two Swiss banks and U.S.-based American International Group Inc., the world's largest insurer.
The scheme, which allegedly helped large Brazilian companies evade taxes by laundering money through the Swiss banks, the American insurer and black market money changers, led to raids at 44 sites in four states on Tuesday.
Experts said the bust, which occurred less than a month after a tax evasion probe led to raids at local offices of U.S. network-equipment maker Cisco Systems Inc., show that Brazil is stepping up its fight against the illegal tax schemes that have for decades deprived Latin America's largest nation of billions of dollars in government revenue.

Well, it wasn’t as if they were robbing U.S. taxpayers ....

2. Had their own executives commit fraud to make AIG’s books look better than they were.

http://www.nytimes.com/2008/02/12/business/12insure.html?_r=1

http://www.insurancejournal.com/news/national/2008/02/25/87627.htm

This was just last year. From the second link above:

A federal court jury in Hartford, Connecticut has found four former General Re Corp. executives and one former American International Group executive guilty of corporate fraud and conspiracy charges stemming from allegations that the five helped cook AIG's books in an effort to boost its stock price.
According to the office of the U.S. Attorney for the District of Connecticut, the four Gen Re executives convicted were former CEO Ronald E. Ferguson, former CFO Elizabeth A. Monrad, and former senior vice presidents Christopher P. Garand and Robert D. Graham. Also convicted was former AIG vice president of reinsurance Christian M. Milton.
The verdict comes after seven days of jury deliberation following the five-week trial. The five counts against each defendant include securities fraud, mail fraud and lying to the Securities and Exchange Commission.
The defendants stood accused of taking part in a scheme of using reinsurance deals to inflate AIG's loss reserves by roughly $500 million between 2000 and 2001.

The article goes on to describe how

(b)ack in 2006, AIG paid $1.6 billion as part of a regulatory settlement in which it agreed to restate nearly $4 billion in profits for the period between 2000 and 2004.
That settlement led to the 2005 ouster of long-time AIG CEO Maurice "Hank" Greenberg, who is an alleged, unindicted co-conspirator in the Gen Re fraud trial.

3. Wrote toxic mortgages themselves

I am beginning to think that these all-in-one multinationals who do everything from shining your shoes to delivery your baby are not a good idea. Why was AIG, the friendly insurance bear, writing bad mortgages? Here is a link about how the Office of Thrift Supervision slapped AIG’s hand. Keep in mind, this was 2007, when the feds were protecting most of the people involved in the mortgage crisis, going so far as to pervert a century old law so that the feds could prevent states from taking action in these cases.

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20070608/REG/70608025

The agreement with the government required AIG to put aside $128 million to help out the folks who were in danger of losing their homes because of the actions of AIG and its affiliate, Wilmington Finance, Inc. We do not learn exactly what kind of fraud AIG committed, however here is one consumer’s account of the bait and switch tactics of Wilmington Finance, which tried to change the terms of a mortgage at the signing.

http://www.ripoffreport.com/reports/0/137/RipOff0137283.htm

This post at another site sums it up better than I ever could.

Jim Kramer went on his show tonight and tried to make AIG a victim of short sellers and then laid blame with SEC chairman Cox for allowing the short tick rule.
However Jim Kramer left out some important information about his beloved AIG. AIG's subprime subsidiary Wilmington Finance - their own wholesale channel for subprime loans. Jim brushed aside AIG's troubling fundamentals and even went on to say " they didn't know what they were insuring". Yet AIG had to have some idea of what they were insuring - I'm sure underwriting and mortgage insurance guidelines came up when they reached a settlement with the department of Thrift in June of 2007.

http://www.ots.treas.gov/docs/4/480958.pdf

Only after two years of subprime loans getting full press coverage of our current housing mess Wilmington Finance closed shop in June 2008. One and a half years since New Century folded. AIG's subsidiary was the last subprime lender in the marketplace. PERIOD.

Thank you Jim Kramer for your defense for one of our country's biggest subprime lenders over the last few years.

http://forum.ml-implode.com/viewtopic.php?p=200779

It takes balls to claim that you didn’t understand the risks of insuring mortgages, when your own company was in the business of writing (risky) mortgages. I am beginning to think that AIG is not as innocent as they would like us to believe. Oh, well, at least they kept their insurance business clean...

4. Took part in a price rigging scam to defraud insurance customers by rigging bids

Is nothing sacred? Here are some links.

http://www.consumeraffairs.com/news04/2005/ny_insurance_indictments.html

http://www.ifawebnews.com/articles/2008/03/24/news/property/doc47c2253a44750492352780.txt

http://www.usatoday.com/money/industries/insurance/2005-02-15-insurance-probe_x.htm

The guilty pleas stem from an Oct. 14 lawsuit brought by New York Attorney General Eliot Spitzer, accusing Marsh of rigging bids for insurance contracts and steering business to insurers such as American International Group in return for special fees. Nine insurance executives have pleaded guilty to criminal charges in Spitzer's probe of the anti-competitive insurance industry abuses: the three Tuesday plus two other AIG managers, one former Marsh broker and three employees at other insurers. (Related: AIG gets subpoenas from SEC, Spitzer)
Spitzer wasn't available for comment Tuesday night, but his spokesman Darren Dopp said: "We are at the early stages of the investigation. We will follow the facts wherever they lead." Earlier Tuesday, Spitzer told Fox News, "These are all individuals who are cooperating with us. ... They are cooperating so we can build bigger cases against others more senior in the industry."
John Mohs, a manager in an AIG excess-casualty-insurance underwriting unit who worked with Marsh, also pleaded guilty to a "scheme-to-defraud" charge, carrying up to four years in prison. Carlos Coello, an ex-AIG underwriter, pleaded guilty to a misdemeanor charge for submitting fake bids at the direction of Marsh and AIG employees. He faces up to a year in prison.
The latest guilty pleas are likely to further embarrass Marsh and AIG.

Someone remind me, who pulled Spitzer off AIG’s back last spring after he announced in public that AIG either needed to recapitalize or break up? Oh yes! That would be the Bush Department of Justice, which issued a phony statement to the press about having evidence that Spitzer used New York State money to pay for a call girl’s services. I wonder what kind of favors AIG might have been willing to provide for the Bush family in exchange for this help in getting rid of their biggest nemesis. Would they have agreed to take part in a scheme in which bailout money intended to stimulate the economy found its way into the hands of VIPs?

Other fun facts about AIG: they bought Dubai’s U.S. ports when Americans got nervous about having a firm from a country that supported the Taliban in charge of our maritime security.

http://www.usatoday.com/money/industries/2006-12-11-dubai-ports_x.htm

And this article reports that being 80% owned by U.S taxpayers did not stop AIG from lobbying Congress for such things as a roll back of a mortgage industry oversight law and for “a bill <1> that allows U.S. companies to sell nuclear technology to India.”. Because, with a company like AIG, what could possibly go wrong with the sale of nuclear technology to a foreign country?

http://www.propublica.org/article/aig-lobbied-for-india-nuke-deal-really-1024

IV. So, AIG Has Committed Insurance Fraud Against Consumers, Cooked Their Books, Sold Toxic Mortgages and Engaged in Money Laundering to Help Businesses Avoid Paying Taxes…and We Are Supposed to Trust Them With Our Bailout Money Why?

http://tpmmuckraker.talkingpointsmemo.com/aig/

The Treasury Department has not asked for the critical information about where this money has gone, from AIG. We've poured the money into AIG, and it has somehow poured it out the other end. The Treasury Department has not asked, and has not revealed, what it is that's happening with that money.
And so as long as that's the case, maybe some of the money is going to other financial institutions. Maybe some of the money is going to pay off these credit default swaps that are essential for saving other institutions that have counted on it for credit and insurance. And maybe some of where this money is going is just off to speculators, who just played the game of speculation, and would now like to collect a hundred cents on the dollar form their speculations, and collect it indirectly from the American taxpayer.
Elizabeth Warren on Maddow

[antimatter98]

1. Sort of related, KPFA radio show on this looting of America

http://www.kpfa.org/archive/id/49073

Above is the link to the mp3 file of the program, broadcast today on KPFA Berkeley, a Pacifica Station.

The show is about the banks looting of America and its effect on American citizens and what
will happen next.

AIG is not mentioned, but this show is a good commentary on what we see happening.

Good Luck

[truedelphi]

2. How much I miss KPFA - really good source for the true skinny

On what is up.