It’s time to Break It Down!
In the fall of 2008, I penned a blog entitled, “A Crisis of Confidence: Economic Homeland Insecurity!” That tome focused on a variety of issues related to the then emerging Great American Financial Armageddon. The central theme of the post, however, revolved around the calamitous and irresponsible actions taken by American International Group, Inc., more familiarly, AIG, and the bailout that followed those actions.
Back on September 17, 2008, when I posted the blog referenced above, America and its economy teetered on the precipice of a catastrophic financial collapse, and no institution was more integral to what might have been, than AIG. To provide a condensed CliffNotes-like summary, the following 5 bullet points frame the lay of the land and AIG’s pivotal role at the apex of the financial threat, as I described it at the time:
· I would posit, aside from the truly financially savvy, most people never heard of, or at least never paid any attention to, AIG. If that is true, indeed, ignorance was bliss. Yes, the company has had a series of TV commercials, but in the age of TiVo and DVR, who watches commercials?
· For the record, AIG is a major insurance company, with offices around the world. Founded in 1919 in Shanghai by Cornelius Vander Starr, AIG is headquartered in New York City. The company’s UK Offices are located in London, the Continental Europe operations are based in Paris, and its Asian Headquarters is in Hong Kong. Beginning to get the picture? AIG, a global conglomerate, became a component of the Dow Jones Industrial Average in 2004, and was cited by Forbes in 2008 as being the 18th largest company in the world.
· Just 3 days ago, the feds opted not to bail out Lehman Brothers after a weekend- long effort by the bank to persuade the Government to do just that. So why save AIG?
· For starters AIG is in a league of its own. Government officials decided they had to act, lest the nation’s largest insurer file bankruptcy. Such a move would roil world markets since AIG has 1.1 T, as in trillion, dollars in assets, and 74 million clients in 130 countries. Plus, AIG’s insurance businesses make so much money they could conceivably pay off the cost of the bailout within a few years.
· AIG is far and away the largest insurer in the world. A quick search of any sampling of mutual funds or any S&P 500 index fund is likely to show the inclusion of the Company’s stock. AIG is a staple in 401k, and has been singly responsible for deflating the Dow more than 400 points this year.
Fast forward four years, 3 months and change; what has become of the great bailout? Well first and foremost, at that time we had yet to plumb the depths of the crisis. There were additional bailouts, a series of embarrassing “additional expenditures,” including, over identifying $1.2 billion in employee bonuses, plus millions more dedicated to expensive retreats at posh venues, and a number of instances in which AIG had to pay out billions to financial institutions, including, Goldman Sachs and Société Générale, to retire obligations related to credit default swaps (CDS). All of this occurred in 2008.
A lot has changed in the ensuing years. Indeed, AIG, as I noted many people projected back in 2008, has repaid the money the U.S. used to bail them out; all of it. Moreover, they have kicked in an additional $22 billion to cover Uncle Sam’s tab for interest payments. It would seem all is good; right?
Well its not! AIG has announced that it is considering suing the Federal Government. The Board of AIG, including current Chairman Robert Benmosche is currently contemplating joining a suit filed by former Chairman Maurice (Hank) Greenberg alleging the Federal Government went too far by demanding exacting terms when it rescued the company in 2008. While no decision had been made, current Chairman Benmosche insists that in order to fulfill its fiduciary responsibilities, the AIG Board must consider joining the suit.
Let’s be clear, AIG had not yet said it will join the suit. It is possible that it may still opt not to take this “beyond the pale” next step. Alternately, the mere fact that the Board is considering joining the suit, which I might add, has already been thrown out by one court, means that the prospect exists that AIG will bite the proverbial “hand that fed it” during its moment of extreme duress.
It’s been a moment since the bailout went down. As a general rule, Americans are accused of having short memories. That is perceived to be one of the reasons why elected officials often flout the law, and a few years later, get re-elected. If, in fact, Mr. Benmosche and the AIG Board opt to join Mr. Greenberg’s suit, he and they would appear to be betting that Americans will have forgotten the enmity and utter disgust they held due to the United States having opted to extend AIG a bail out.
Even now, I am convinced AIG was “Too big to fail.” Moreover, I am comfortable with the notion that the AIG Board, whose responsibility is to look out for and make decisions in the best interest of shareholders, does have an obligation to review its options in this instance. Alas, if AIG actually decides to join Mr. Greenberg’s suit, I will default to the position that AIG is totally devoid of reasoning, since it was the Board’s irresponsible bets that led them to edge of their own corporate FiscalCliff. I will surmise they are too greedy to merit America’s collective empathy; just too damn arrogant for words…period!
From thank-you to sue you; if it plays out that way, we will see a classic case of, “SplitPersonality: The AIG Story Revised!”
I’m done; holla back!
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