AIG settles fraud lawsuit, to pay $725 Million

[Schadenfroh]

The settlement resolves allegations of AIG's wide-ranging fraud from October 1999 to April 2005 and brings the expected recovery for AIG shareholders to about $1 billion, Cordray said.

AIG, which was bailed out in September 2008 from near-collapse with a $182.3 billion taxpayer-funded rescue package, said it was "pleased to have resolved this matter."

I guess this is pocket change compared to the $180 Billion we have already spent bailing them out. One of the economists here able to reassure me that the billions of tax dollars that we have poured into this failure of a company is worth it to avoid an even larger disaster or did The Fed not realize what they were getting into when they first bailed them out and kept pouring money into it to make sure the initial "investment" was not wasted?

I doubt that the company will ever be able to pay back the taxpayers. The AIG situation truly makes me disgusted.

 

[Acanthus]

AIG owed so much in housing derivatives that virtually every bank in the country would have failed if it failed to pay its liabilities.

Even Bush's economics experts realized this when they carved out TARP.

 

[IronWing]

The money we poured into AIG is gone. It went to the counter parties in AIG's CDOs. Some of these were synthetic CDOs. We basically used tax dollars to cover AIGs gambling debts.

 

[Acanthus]

The money we poured into AIG is gone. It went to the counter parties in AIG's CDOs. Some of these were synthetic CDOs. We basically used tax dollars to cover AIGs gambling debts.

Yup.

 

[Hacp]

Why not just let them fail and pick up the assets during bankrupcy? Then pay out 30-40 cents on the dollar.

 

[Acanthus]

Why not just let them fail and pick up the assets during bankrupcy? Then pay out 30-40 cents on the dollar.

The FDIC didnt have enough reserves to even approach this, nor the authority to do so as AIG isn't a bank.

 

[Jhhnn]

Just free market global economy self-regulated international banking/ insurance/ investment at its finest.

I mean, uhh, wtf did y'all think would happen when the most ruthless and conniving bastards in the known universe were left to their own devices? Puppies and Rainbows? World Peace? What?

Too bad it all fell apart with repubs in the executive- otherwise, AIG and the rest might have rightfully been nationalized, reorganized, broken into smaller entities and sold back into the private market... with suitable prohibitions against recreating the monstrosities that still exist...

 

[Acanthus]

Just free market global economy self-regulated international banking/ insurance/ investment at its finest.

I mean, uhh, wtf did y'all think would happen when the most ruthless and conniving bastards in the known universe were left to their own devices? Puppies and Rainbows? World Peace? What?

Too bad it all fell apart with repubs in the executive- otherwise, AIG and the rest might have rightfully been nationalized, reorganized, broken into smaller entities and sold back into the private market... with suitable prohibitions against recreating the monstrosities that still exist...

Yeah, the sickening part is about 45 employees were responsible for the AIG crash.

AIG had 42 "wings" of the company. 40 of them were profitable.

The 2 that tanked were the aircraft leasing division and AIG Financial Products (the derivatives wing)

 

[jackace]

AIG owed so much in housing derivatives that virtually every bank in the country would have failed if it failed to pay its liabilities.

Even Bush's economics experts realized this when they carved out TARP.

The problem is we didn't force many if any of AIG's counter parties (ie banks) to take any hits on their financial bets. When you make bets on a firm and it goes insolvent you are supposed to take a big hit for that bet. Most of these counter parties (banks) were instead made completely 100% whole at the cost of the tax payer.

http://www.youtube.com/watch?v=pz7ruJw6byQ

 

[Acanthus]

The problem is we didn't force many if any of AIG's counter parties (ie banks) to take any hits on their financial bets. When you make bets on a firm and it goes insolvent you are supposed to take a big hit for that bet. Most of these counter parties (banks) were instead made completely 100% whole at the cost of the tax payer.

http://www.youtube.com/watch?v=pz7ruJw6byQ

I agree to an extent.

 

[jackace]

I agree to an extent.

One of the fundamentals of Capitalism is when you make a bad investment you take a hit. These banks took little or no hit for their bad investment. That is not Capitalism.

 

[cubby1223]

Just free market global economy self-regulated international banking/ insurance/ investment at its finest.

Right, because Fannie Mae & Freddie Mac were complete free market enterprises. And the Community Reinvestment Act was pure free market too. And all the politicians that pushed "affordable housing" solely to retain their seats in congress were all free market.

 

[cubby1223]

The problem is we didn't force many if any of AIG's counter parties (ie banks) to take any hits on their financial bets. When you make bets on a firm and it goes insolvent you are supposed to take a big hit for that bet. Most of these counter parties (banks) were instead made completely 100% whole at the cost of the tax payer.

The government still has to follow the rule of law, law that *they* create. At that time, failure of AIG was not a viable option for the stability of the nation, thus the government had zero leverage to negotiate those debts.

Would you continue working with a company who paid you back 30 cents on the dollar of what they owe you? Of course not. The government needed the other banks to continue working with AIG, thus were forced no matter how much you grovel about it, to pay out in full.

 

[Jhhnn]

Heh. The big banks were so deep into that they needed every dime they got from AIG, and more, to survive.

If the patient needs 2 pints of blood to survive, but gets only 1, well, there it is...

 

[jackace]

The government still has to follow the rule of law, law that *they* create. At that time, failure of AIG was not a viable option for the stability of the nation, thus the government had zero leverage to negotiate those debts.

Would you continue working with a company who paid you back 30 cents on the dollar of what they owe you? Of course not. The government needed the other banks to continue working with AIG, thus were forced no matter how much you grovel about it, to pay out in full.

Which takes us to the "too big to fail" and "privatizing profits and socializing losses", and now we aren't even following the fundamentals of capitalism. Then we wonder why we are up shit creek without a paddle.

 

[Jhhnn]

Right, because Fannie Mae & Freddie Mac were complete free market enterprises. And the Community Reinvestment Act was pure free market too. And all the politicians that pushed "affordable housing" solely to retain their seats in congress were all free market.

Heh. Under the Bushistas, the GSE's became repositories for bank spooge, because their regulator, HUD, a part of the executive branch, demanded they furnish more "affordable" loans... the way they did that was to buy MBS from the big banks, because they didn't have the personnel to process all those loans themselves-

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

GSE execs got their bonuses for meeting their targets, Dubya got re-elected, the banks got to drop their loads, (they've never been shy) and it was all good until... until... until reality caught up. The Bush Admin made the GSE's the fall guy (they needed one, badly) and there are still blind fanbois who believe that version to this very day...

But I'm sure you'll continue to believe what you want to believe. Not a doubt in my mind. Your "opinion" wrt the CRA fits right into the rest of the fantasy-

http://www.prospect.org/cs/articles?article=dont_blame_the_community_reinvestment_act

Yeh, I know- tl, dnr... Your attention span only covers soundbites...

 

[lothar]

Heh. The big banks were so deep into that they needed every dime they got from AIG, and more, to survive.

If the patient needs 2 pints of blood to survive, but gets only 1, well, there it is...

Yes, but a baby(hundreds of community banks) that needs only 1/4 pint of blood is allowed to squirm and die because they are not "too big to fail".
I'd like to subscribe to your newsletter.

Yes, because allowing Goldman Sachs to take a 20%, 10%, 5%, or even 1% haircut on the $12 billion payout they recieved from AIG would have destroyed the US economy and led to "The Greater Depression".
Timothy Geithner is a Goldman Alum, and so was the guy that was made in charge of distributing the TARP funds. That explains why they paidout 100%.

 

[Acanthus]

Yes, but a baby(hundreds of community banks) that needs only 1/4 pint of blood is allowed to squirm and die because they are not "too big to fail".
I'd like to subscribe to your newsletter.

Yes, because allowing Goldman Sachs to take a 20%, 10%, 5%, or even 1% haircut on the $12 billion payout they recieved from AIG would have destroyed the US economy and led to "The Greater Depression".
Timothy Geithner is a Goldman Alum, and so was the guy that was made in charge of distributing the TARP funds. That explains why they paidout 100%.

Actually, Hank cashed out when he got appointed because it was tax free for him becoming a public servant. He personally made about $400m selling all of his Goldman-related assets.

While he still might've helped out his old friends and employer, he had no financial stake left at Goldman.

 

[lothar]

Actually, Hank cashed out when he got appointed because it was tax free for him becoming a public servant. He personally made about $400m selling all of his Goldman-related assets.

While he still might've helped out his old friends and employer, he had no financial stake left at Goldman.

It's not Hank I was referring to.
http://www.huffingtonpost.com/2009/06/02/government-sachs-goldmans_n_210561.html

Take a look at the revolving door.
http://www.muckety.com/897792228FFFA019E542A0A86226FE6D.map

Neel T. Kashkari: Appointed by Paulson to oversee the $700 billion TARP fund and was considered Paulson's right hand man during the crisis, all at the tender age of 35. Kashkari was criticized for the lack of oversight of the funds disbursement, which he said would have been impossible since the funs are fungible. This assertion has been largely refuted by Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program. Kashkari was also responsible for recruiting Reuben Jeffrey.
Was technology investment banker for Goldman in San Francisco from 2004 to 2006.

A 35 year old? Seriously?

Reuben Jeffrey: Selected by fellow Goldman alum Kashkari as the interim chief investment officer for the bailout. He was formerly the chairman of the CFTC, a role currently held by fellow Goldmanite Gary Gensler, as well as Under Secretary of State for Economic, Energy, and Agricultural Affairs.
Was executive for 18 years at Goldman, beginning in 1983.

 

[shortylickens]

I didnt think an Airsoft company had 750 million in disposable cash.

 

[Jhhnn]

Yes, but a baby(hundreds of community banks) that needs only 1/4 pint of blood is allowed to squirm and die because they are not "too big to fail".
I'd like to subscribe to your newsletter.

Yes, because allowing Goldman Sachs to take a 20%, 10%, 5%, or even 1% haircut on the $12 billion payout they recieved from AIG would have destroyed the US economy and led to "The Greater Depression".
Timothy Geithner is a Goldman Alum, and so was the guy that was made in charge of distributing the TARP funds. That explains why they paidout 100%.

Meh. The 10 biggest banks/ investment houses conduct the vast, vast majority of all finance in this country. They were all incestuously involved with each other and AIG at the derivative level, along with the world's other banking giants. AIG's inability to pay put the whole system into lockdown.

Perhaps the biggest problem wrt derivatives is the inability of banks to determine the exposure of their counterparties to risk, the ability to pay out as required when the situation demands it. Much has been made in conspiracy theory circles wrt AIG and GS, but the problem was much bigger than that. Giving Goldman a haircut would mean giving them all a haircut, and the need for greater infusions of cash into the system wouldn't have gone away. You essentially argue that the blood should have been put into the patient's left arm rather than the right, the patient being the entire financial system.

Saving every community bank in existence at the time wouldn't have made a dent in the problem, because their combined total assets aren't a pimple on the ass of the greater system.

 

[jackace]

Meh. The 10 biggest banks/ investment houses conduct the vast, vast majority of all finance in this country. They were all incestuously involved with each other and AIG at the derivative level, along with the world's other banking giants. AIG's inability to pay put the whole system into lockdown.

Perhaps the biggest problem wrt derivatives is the inability of banks to determine the exposure of their counterparties to risk, the ability to pay out as required when the situation demands it. Much has been made in conspiracy theory circles wrt AIG and GS, but the problem was much bigger than that. Giving Goldman a haircut would mean giving them all a haircut, and the need for greater infusions of cash into the system wouldn't have gone away. You essentially argue that the blood should have been put into the patient's left arm rather than the right, the patient being the entire financial system.

Saving every community bank in existence at the time wouldn't have made a dent in the problem, because their combined total assets aren't a pimple on the ass of the greater system.

IMO, that's a problem we need to fix. If any one corporation is large enough that it's collapse can bring down the entire economy then that corporation needs to be broken up. We do that with every other industry, why not the financial industry?

Edit - Not only is it a problem that needs to be fixed but it's a failure by the regulators for even letting it get to this point.

 

[Jhhnn]

IMO, that's a problem we need to fix. If any one corporation is large enough that it's collapse can bring down the entire economy then that corporation needs to be broken up. We do that with every other industry, why not the financial industry?

Edit - Not only is it a problem that needs to be fixed but it's a failure by the regulators for even letting it get to this point.

It wasn't an issue of one failing institution, but rather systemic failure. Mega banks played heavily in creating system fragility, no doubt, but the over extension of credit in general played as big a role. When ownership and income shift to the top, credit replaces it among the middle class. In order to sustain that shift, greater and greater extensions of credit are required causing prices to rise until it all becomes excessive, and the whole bubble collapses.

Too big to fail is an over simplification. The same thing happened in 1929 and following years, even though banking in general was carried out at a much more diffuse level. When too many players adopt the same risky strategy and it fails, the whole system fails. More players reduces the chances of that on a theoretical level, and holding banking to State level regulation theoretically creates a more diverse and therefore stable set of strategies... none of which the Bush Admin considered in the slightest when they invoked a civil war era statute to stymie state regulators, relaxed federal standards at the same time...

All this falls in line with bankers' successful efforts to dismantle New Deal banking safeguards over a period of decades, using repubs as their agents. It's still happening today- witness the Senate vote on a truly watered down banking bill...

 

[LegendKiller]

Right, because Fannie Mae & Freddie Mac were complete free market enterprises. And the Community Reinvestment Act was pure free market too. And all the politicians that pushed "affordable housing" solely to retain their seats in congress were all free market.

The vast majority of the problem wasn't from CRA. Using that is a false flag.

I/O no-doc NINJA loans weren't CRA and didn't come from CRA regulated institutions (such as Countrywide).

"Affordable housing" using those loans had nothing to do with Congress, CRA, or the GSEs. It had to do with the broken Broker-Bank-Securitization model whereby the "pass the trash" methodology kept shifting the risk away from those who should have been responsible.

The GSEs were collateral damage. They were lending on reasonably good credits (conforming) that financed houses that had inflating prices due to the leverage on the margins (NINJA loans). Since the whole market was inflating due to those loans (non CRA), the whole market came down because their absence. As such their reasonably good credits started to default, not because of a primary influence, but because a secondary collateral damage.

That bugaboo you love using is only for retards.

 

[LegendKiller]

Yes, but a baby(hundreds of community banks) that needs only 1/4 pint of blood is allowed to squirm and die because they are not "too big to fail".
I'd like to subscribe to your newsletter.

Yes, because allowing Goldman Sachs to take a 20%, 10%, 5%, or even 1% haircut on the $12 billion payout they recieved from AIG would have destroyed the US economy and led to "The Greater Depression".
Timothy Geithner is a Goldman Alum, and so was the guy that was made in charge of distributing the TARP funds. That explains why they paidout 100%.

Much of what Goldman was paid didn't stay at Goldman, it went to other parties, including hedge and pension funds.

A hedge contract, such as those written by AIG, have multiple "counterparties", whereby one person pays another in a chain. Goldman wasn't the final counterparty in many of the contracts.

You should read The Big Short by Michael Lewis, he explains it pretty well for laymen.