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We know that some of that money went to pay for plush resort vacations in California. But that is only the small amounts. The Administration just figured -- "Heh, it's not our money going out the door -- who cares what happens to it?"
It was the same thing with $44.5 billion worth of government contracts for Iraq -- give friends the billions and let them do with it what they want. This attitude led to the firing of an Army official who refused to authorize $1 billion in questionable charges to KBR, the unit of Halliburton (NYSE: HAL) that Dick Cheney formerly ran.
American International Group (NYSE: AIG) is not required to report how it's spending our money, but hints have surfaced about where some of it went: $18 billion to cover losses on AIG's securities lending -- where it lent out securities which then declined in value, and $13 billion to pay guarantees on Guaranteed Investment Contracts (GICs). I know I had nothing to do with these bad business bets so why am I paying for them?
But the biggest chunk of the remaining unaccounted for $101.8 billion went to provide collateral for AIG's $447 billion in Credit Default Swaps (CDSs). AIG claimed in financial statements that its growing losses there involved no cash and were on paper only -- $11.4 billion (12/07), $20.6 billion (3/08), $26 billion (6/08). But AIG must have been "kidding" about no cash involved because by June 2008 it had posted $16.5 billion in cash collateral. And fear that collateral requirements would exceed its cash triggered the Administration to give AIG our $122.8 billion.
Since I doubt we can get our money back from AIG, it's time to get a detailed, independent accounting of how that money is being spent. And if that is not forthcoming, the people who gave out the money and who are spending it now should be replaced with ones who will act on behalf of the taxpayers who are keeping AIG out of bankruptcy -- not to line the pockets of those who put AIG in need of a government bailout.
I think this is a mission for Andrew Cuomo -- one of the few public officials who is actually trying to protect taxpayers' interests. He is trying to get data from nine banks to make sure they don't use the $125 billion paid out to them for bonuses. And his argument is that since taxpayers are their shareholders, the companies owe a duty to protect our interests.
The same logic goes for AIG.
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 1 of 1)
10-30-2008 @ 9:50AM
Brandon said...
Thats a good point, we havent heard anything about AIG since the bailout and the CEO party they had afterwards lol.
I read another interesting article about AIG that spelled out some of whats going on. Here it is http://www.gotoguy.com/?p=472
10-30-2008 @ 12:51PM
Thomas Paine said...
Not being a holder of an MBA from Harvard, I have difficulty in understanding some of these high-finance dealings. The area of "bonuses paid to executives" for the ailing companies is quite perplexing.
It appears that as financial companies LOSE revenue, the bonuses decrease. Whereas, in the general commerce, a bonus is paid only when the company's revenue increases and is eliminated at the point of zero growth in revenue.
In general commerce, when the revenue drops below the zero threshold, the executive is fired. But in the financial world, the executive is just given less "bonus" money. ???
At what point of LOSS, is a Bonus actually eliminated? Just how bad does an executive have to be before s/he isn't rewarded, at all?
If a company hits "rock bottom" and has only a $20 bill left in the till, is that the minimum, and final, bonus paid to the executive?
As far as oversight goes, I see our money being used and therefore our accounting dept. should be used. The GAO should contract with an audit firm (KPMG comes to mind) to go over EVERY SINGLE DIGIT IN THEIR BOOKS.
I vote for an army of bean-counters to make their life a living hell. Any inconsistencies found will result in an appearance before several Congressional committees. None of this may have any positive result, except for the good feeling we get watching them squirm, on CSPAN.
I also vote that the operation be paid for entirely with funds that are derived from those executives' bonuses that are declared forfeited by reason of the bailout. Call it, The Bonus Fund. If any is left over, send the taxpayers a "dividend" check.
10-31-2008 @ 12:30PM
Allen said...
To respond to Thomas Paine, one of the problems with AIG is that there were outside auditors, who might have caught the problems much sooner. Trouble is that AIG stonewalled them, refusing them full access to its books. It did somewhat the same thing with its own auditors. As a result, investors were kept in the dark (read: defrauded!). The assertion by disgraced former CEO Martin Sullivan that he did not know about this belies the basic reality that, given the internal reporting mechanisms in place in the company, the only way he would not know was if he chose not to read the reports or was perhaps too busy partying to be bothered.
The basic reality is that, while the government has given the welfare queen of Wall Street (AIG) a bailout of $122+ billion (and rising) taxpayer dollars, AIG is still going bankrupt and will likely have to file before the end of the year. At the very least, AIG needs over $400 billion to remain solvent, which would be a colossal waste of tax dollars. There is absolutely no rational reason for dumping more money down this money pit! The government should insist upon an immediate liquidation of all of AIG, with first priority being given to making whole the taxpayers, who are the victims.
As for bonuses, the notion in the financial services industry of bonuses for failing to succeed is ludicrous, at best.