What went wrong at AIG?
Since the uproar over the firm’s bonuses, it’s become fashionable to distinguish between the masters of the universe at AIG Financial Products, the subsidiary that nearly torched the global economy, and the working stiffs at the rest of the company. So compelling is this dichotomy, in fact, that even the AIG basher-in-chief has invoked it. “You’ve got a company, AIG, which used to be just a regular old insurance company,” President Obama explained during his recent “Tonight Show” appearance. “Then they decided–some smart person decided–let’s put a hedge fund on top of the insurance company and let’s sell these derivative products to banks all around the world.
People awoke this morning to the news that the government is investing another $40 million, via TARP, in troubled AIG. That brings the total bailout to $150 million, far more then the government has ever put into a single company, the New York Times notes. The move is a stark admission that not only did the initial bailout moves not work, they actually hurt the company, sticking it with high interest payments and forcing it into an asset firesale. The government also said it will spend an additional $30 billion to buy up ailing collateralized debt obligations that AIG had disastrously insured. Such securities will be shifted to off-balance sheet entities and will not require massive collateral to be put up. This is an example of how the bailout is not a slam dunk, and despite the billions of dollars, success isn’t guaranteed. For more: – here’s the article Related Articles: Is the Cramer vs. AIG rift over?
