Monday, March 23, 2009

AIG: A Billion-Dollar Financial Black Hole?

Taking note of the TARP fund misappropriation via exorbitant executive bonuses, is the insurance and financial corporation AIG really too big to fail?

By: Ringo Bones

Many considered it as the battle that needs to be lost in order for the greater war against the on-going global economic downturn to be won. While others considered the company as too big to fail, but has the US Government made the right decision in spending their not-so-limitless billions of the Troubled Assets Relief Program or TARP funds on AIG? Or is AIG nothing more than an obsolete financial institution trapped in the REAGANOMICS euphoria of the 1980’s?

American Insurance Group Incorporated or AIG managed to get the ultimate PR free-ride during the Clinton Administration when the company’s frequent and highly visible adverts about their environmental coverage and their underwriting ability for environmental risks. During this period of “think locally, act globally” environmentalism of the 1990’s, AIG practically invented corporate social responsibility years before the term became popular in American Ivy league business-oriented colleges. Whether the company practiced corporate social responsibility at the time is another thing entirely, but it did bring them an aura of a corporate entity that’s accountable for the planet.

That was then, but in the era of Bush Administration-era tax cuts in with the promise of prosperity, AIG got too greedy for their own good. After being swept up in the subprime mortgage frenzy, the financial arm of AIG lost it’s better judgement after succumbing to the promise of fat profits of loaning money to persons who can’t afford to pat them back. Many financial pundits had now blamed the company as the ground zero of the global subprime mortgage crisis. When the toxic assets of the subprime mortgage debacle came in contact with their arcane credit derivatives of their credit insurance arm, this created a “perfect storm” that instigated our on-going global financial crisis.

Given that the proverbial Road to Hell is always paved with good intentions, the US Government got hoodwinked into giving AIG a few billion – 170 billion dollars more or less – of the somewhat limited TARP money. All in the hopes of propping up the company that’s supposedly too big to fail. A few months later, AIG misappropriated those billions by giving each of their top executives 165 million dollars in bonuses, which AIG CEO Edward Liddy says to the press fundamental mistakes were made in handling of the TARP funds – an excuse by any other name?

The corporate excesses of AIG drove Treasury Secretary Timothy Geithner to explain himself to the press claiming that he is at fault. While President Barack Obama created another first as the first incumbent president to appear on the Tonight Show With Jay Leno in order to explain to the American people the on-going debacle at AIG. But whatever shenanigans AIG is doing, the US Government already had the upper hand. Since as majority shareholder of AIG, Uncle Sam can simply “claw back” those ill gotten millions of dollars misappropriated as executive bonuses by legislating tax laws aimed at AIG executives, which they are currently doing right now. If Uncle Sam can’t or won’t control AIG, it could become the financial black hole that will swallow Wall Street.

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