I had refrained from commenting much on the latest iteration of retrading AIG's deal with Uncle Sam, save to observe that each of its predecessors had resulted in an arrangement more favorable to AIG, and I saw no reason to assume this time would be any different.
One of the features of this revamp was to give the US a bigger stake in certain operating units, presumably the more valuable ones. That assumption appears dead wrong. Per John Hempton:
There is only one piece of AIG that is still highly valuable – which is the core American P&C business (including some auto businesses). AIG has for instance merged AIG Direct into its fully owned 21st Century – a California Insurance Company. That business is still a very effective competitor – but their website no longer mentions those three letters (AIG) – I guess to protect the value of that business.
Life companies (ALICO etc) are not anything like as valuable as they were.
I posited in this post that the Feds were taking their interest in direct ownership of the valuable bits of AIG – so that they could let the mothership go.
I was wrong. The Treasury announcement contains this phrase:The Revolving Credit Facility will be reduced in exchange for preferred interests in two special purpose vehicles created to hold all of the outstanding common stock of American Life Insurance Company (ALICO) and American International Assurance Company Ltd. (AIA), two life insurance holding company subsidiaries of AIG. AIG will retain control of ALICO and AIA, though the New York Fed will have certain governance rights to protect its interests. The valuation for the New York Fed’s preferred stock interests, which may be up to approximately $26 billion, will be a percentage of the fair market value of ALICO and AIA based on valuations acceptable to the New York Fed.
If the government wanted to protect taxpayers it would take control of the really valuable bits of AIG through this sort of structure.
They are not doing so.
Taxpayer protection bought to you by Geithner, Obama and Moral Hazard’s other friends.
Now AIG was always full of very very clever lawyers, but I wonder why I have heard nary a peep about C.V. Starr (technically C.V. Starr and Starr International Co. both headed by former AIG CEO Hank Greenberg),AIG affiliates that I long understood to be management enrichment vehicles (as if the AIG top echelon weren't already well enough paid).
Even normally jaded writers are starting to take umbrage at the AIG mess. From Felix Salmon:
The scandal here is not the size of the losses from the global financial meltdown -- those are losses which sooner or later, in one form or another, would have had to be borne by the government anyway. Rather, the scandal is that AIG could have earned billions of dollars by selling insurance against a meltdown, even as it was wholly incapable of paying out on those policies. I wouldn't be surprised to learn that Hank Greenberg was still a billionaire, even as the policies his company wrote have cost the average American household some $1,600. It's time for his wealth to be confiscated: it might be only a drop in the bucket compared to AIG's total losses, but it would feel very right.
And Matt Yglesias agrees.
However, in a typical display of unmitigated brazenness, Hank Greenberg, who set the credit derivatives mess in motion, has the temerity to be trying to extract yet more money from AIG, which now means the US taxpayer. As the Wall Street Journal reports:
Separately, former AIG Chief Executive Maurice "Hank" Greenberg has sued the company in New York federal court, alleging securities fraud tied to misrepresentations of billion of dollars in losses on the company's portfolio of credit default swaps. A company spokeswoman said the company believes the lawsuit is without merit.