AOL Money & Finance

AIG takes $122.8 billion of taxpayer money, enjoys luxury resorts

More

The government takeover of American International Group (NYSE: AIG) is going swimmingly -- for AIG's top brass. They got an $85 billion bridge loan in exchange for an 80% equity stake last month. AIG has already spent $61 billion of that $85 billion and will now get another $37.8 billion.

But wait -- there's more. AIG executives spent $440,000 for a spa vacation at the St. Regis resort in Monarch Beach, CA after they got our $85 billion. If you clicked on the link to the St. Regis, you know that AIG goes in style. That's why it came as no surprise that it was planning another ritzy affair for its insurance brokers. That event, at the Ritz Carlton in California's Half Moon Bay, was going to "motivate and educate" 150 independent agents who sell AIG coverage. (Update: They planned a big sales conference at the Ritz-Carlton in Half Moon Bay, but just cancelled it after public complaints). See how well reverse-Robin-Hood economics works?

Is there any business reason for AIG to be burning through so much of our cash? It claims that it needs the money because of its securities lending business, which lent securities to hedge funds and got the value of the securities and a fee in exchange. AIG then used the cash to buy mortgage-backed securities (MBS).

See, AIG originally got the government money to help wind down its structured finance unit, which made the Credit Default Swaps (CDSs) whose collateral calls put AIG into such a precarious position. But AIG claims it can't wind down its structured finance business until it stops the bleeding in the securities lending business.

The Federal Reserve Bank of New York will give $37.8 billion to AIG's life insurance subsidiaries while taking the batch of toxic MBS off their hands. This is probably a terrible deal for the Fed since the MBS are probably not worth that much cash -- and by giving AIG the cash, it won't have to write down the value of the MBS.

Incidentally, it was John McCain's chief economic advisor, Phil "Americans are Whiners" Gramm who deregulated the CDS market back in 2000. And without that, AIG would not have been able to take on such a big CDS book whose collateral call drove it into our generous arms.

Would it be terrible if AIG executives had to use their own money, instead of ours, to pay for their luxury resorts?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG securities and has no financial interest in the other securities mentioned.

Reader Comments (Page 1 of 4)

Symbol Lookup
IndexesChangePrice
DJIA+203.5210,226.94
NASDAQ+41.622,154.06
S&P 500+23.781,093.08

Last updated: November 10, 2009: 02:34 AM

BloggingStocks Exclusives

Hot Stocks

DailyFinance Headlines

Latest from BloggingBuyouts

TheFlyOnTheWall.com Headlines

    BioHealth Investor Headlines

    WalletPop Headlines

    My Portfolios

    Track your stocks here!

    Find out why more people track their portfolios on AOL Money & Finance then anywhere else.

    BloggingStocks Partners

    More from AOL Money & Finance

    WalletPop Headlines