Ace of Spades
American International Group Inc. (AIG) is an American multi-national insurance corporation. At the beginning of the financial crisis, it was the largest insurance company in the US. Other insurers are required to hold as collateral a certain percentage of the amount they have insured for, in case something goes wrong and they have to pay up. However, AIG, because it had the highest credit rating possible from the ratings agencies, sold credit protection in the form of CDSs (credit default swaps) and CDOs (collateralized debt obligations) without collateral. No backup. So when AIG’s credit rating was downgraded in 2008 and it suddenly had to come up with a great deal of collateral, it was unable to meet its obligations. One person, Joseph Cassano, the head of the AIG Financial Products division, had responsibility for—among other disastrous CDSs--some $57.8 billions-worth backed by subprime loans. AIG’s losses in mortgage-backed securities meant that the corporation would have had to file for bankruptcy protection. This prospect was considered so destabilizing for both the US economy and international markets that the Federal Reserve Bank of New York authorized a loan of up to $85 billion to AIG. This loan predated TARP, the bailout of the banks, but paved the way for how the Federal government would respond to other “Too Big To Fail” institutions. The initial loan of $85 billion has been estimated to have increased to as much as $180 billion with the addition of a credit line and monies to buy mortgage-based assets. Much of the insurance money that went to AIG from the government was used to pay big firms like Goldman Sachs and Deutsche Bank, thus increasing their take from the financial bailout. After its bailout, AIG paid its executives $165 million in executive bonuses. While this was a tiny amount of money compared to the billions AIG received, it exemplifies the way in which, over and over, the creators of the international crisis and the people who caused untold suffering not only have not been held accountable, but have been rewarded for what they’ve done. It is as if the financial crisis was an act of God instead of many acts by various bankers, investors, insurers and their accomplices. References: ‘Government Sells Shares in AIG’, NY Times, updated September 10, 2012. Article unsigned. ‘Fed Chief Says Insurance Giant Acted Irresponsibly’, David Stout and Brian Knowlton, NY Times, March 3, 2009.
Art by: Steve Simpson