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Former Olympic Rower Turned to Minimalism to Pay Down $82,000 in DebtThe 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.
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Reader Comments (Page 4 of 4)
10-11-2008 @ 8:27AM
seamus said...
This is mere grandstanding. These events are lifelines to the hotels and the workers at these hotels. They do not appreciate the politization of their business which feeds unwarranted resentment, when given the full facts.
These events were given not to AIG employess for "indpendent insurance agents" whose job is to help pay off that loan. Secondly, cancellation fees at this time would be well over 50% none of which would go to the hotel workers who would have been paid to work the events.
10-11-2008 @ 9:42AM
Rhonda said...
This is absolutely ridiculous. If the money is not made to be paid back to our government, then hello, it doesn't say much for our government. How many of us average working people would have ever gotten by with this? I agreed in the aspect that if they do not make them pay back the money, we need to take a closer look at our Congressmen and take this into aspect upon the next voting.
10-11-2008 @ 2:22PM
Gilbney said...
A perfect example of what happens without proper oversight!!!! Oh - just let the free market run the show and the economy will be great. Well, my fellow Americans, this is why we're in the current mess - and its anyone's guess if our retirement savings will be there for us. Anyone for privatizing Social Security??
10-12-2008 @ 5:29AM
Theresa said...
Bush and Cheney should resign.
We shouldn't have to impeach them. They should just GO.
Other country leaders, like from Israel, recently, step down gracefully because they don't have anything at stake.
Here, Bush's plans are the wrong ones for us, but maybe not for him.
We should just all stand up and tell him and Cheney to leave.
And don't let them take the bank with them.
They could be tried in a court for all the crimes they have committed.
10-26-2008 @ 6:10PM
Michelle said...
I look forward to a world much better than that represented by the AIG gross-out.
10-20-2008 @ 1:51PM
HUSKERDIVA said...
I am sure many of you are aware that AIG also sponsored a "hunting trip" that set them back approximately $89,000. Andrew Cuomo has gone on record and warned them (AIG) that they will not receive anymore "bailout" funds. The interesting part was a comment from a person on the blog who stated that it was a "necessary part of doing business" and "how dare we think otherwise." In my opinion, any company who professes to care about America and her people will do ANYTHING necessary to help her people to stay in their homes, feed their children and make sure that everyone has adequate health care...NOT lanquish in spas and hunt. I agree with you all...NO AIG!!!
10-21-2008 @ 2:53PM
geoff gregory said...
I came upon this bog by accident but have nothing but praise for the contributors. I live in the UK..where we have our own similar problems and I echo the feelings of most here. I've have enjoyed many visits to your great country and I feel extremely saddened that you are now suffering so much. God bless you all.
10-28-2008 @ 6:37PM
Ree said...
In liu of turning funds over to these criminals, I say let them go bankrupt. Let a depression hit. So what? Our grandparents and parents survived, we will, too. I think the word "depression" is in reference to the state of mind that these @#$#$es will be in when they find themselves living like paupers. Welcome, America, to being a third world country!
11-11-2008 @ 9:23PM
Ed said...
A solution for us Middle Class Tax Payer!
Tax Revolution??? Stop Paying Income Tax to This Inept Government Of Ours!! We Dont Have Enough Jails To Put Us All In!!
12-22-2008 @ 6:26AM
Terri said...
all the boils down to is that the rich are supporting the rich, they have one thing in common the same investment, if one looses the other does, so the rich have to support the rich