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ScrantonPoliticalDiscussionBoard -> National/International Politics & Issues -> Fed 80% Takeover of AIG: Disgusting, Just Disgusting
Post Info TOPIC: Fed 80% Takeover of AIG: Disgusting, Just Disgusting
Agamemnon


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Fed 80% Takeover of AIG: Disgusting, Just Disgusting
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Fed To Take 80% Stake In AIG

As an employee of a global insurance/financial services company, I am DISGUSTED by the actions of the Fed. Yes, Uncle Sam is now bailing out a competitor of my employer, to the tune of an $85 billion dollar loan. Why am I disgusted?

...the leaders of AIG are responsible for this mess, not US taxpayers
...in effect, the Fed is rewarding bad behavior
...if AIG is to be saved, it should be in the hands of the private sector...along the lines of the BofA/Merrill Lynch deal
...how is this kind of financial backing remotely equitable when compared to those firms that have to obtain capital via the markets?
...my employer "suffered" through years of ROE in the 10-12% range precisely because it made reasonable investments; AIG lived high off the hog for a decade or more and now is handing the bill to us
...why, why, why am I, as a taxpayer, now supporting a competitor of my employer?

This REALLY pisses me off. This is UNREASONABLE. This is a slap in the face of every one of AIG's competitors.

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LusOnlyVoice


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RE: Fed 80% Takeover of AIG: Disgusting, Just Disgusting
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Ag ... I am not someone who is very knowledgble in the field of insurance ... but ... this is my question to you ... what would happen to the people who are customers with this insurance company? a friend of mine has had his life insurance with AIG for a long time ... and is at an age now that he would have trouble getting a policy ... what would happen should this company go belly up? That would leave him without insurance ... wouldn't it?

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Agamemnon


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RE: Fed 80% Takeover of AIG: Disgusting, Just Disgusting
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Lus,

What would happen in an AIG bankruptcy? Well first, it's not a given that they would go bankrupt OR that the form of bankruptcy would result in liquidation. Here are a couple of points to consider:

  • AIG's retirement products (sold, for example through Valic and in the form of payment-phase annuities) would be safe, as the underlying investments are in the form of separate accounts (investments separate from the underlying insurance company) and mutual funds (which are segretated also and consist not of AIG's liabilities, but of the liabilities of just the particular fund). Retirees who are currently receiving an annuity (monthly payment) benefit would might see a reduction in what they get if the company were liquidated and those liabilities assumed by other companies. It would not, however, be a total loss.
  • AIG, like every other insurance company doing business in the United States, has a state charter that require, among other things, a certain percentage of assets be held in reserve to meet policyholder needs. AIG is chartered in New York, which has the toughest set of rules in the country...and maybe in the entire world...so there is some core protection for policy holders.
  • Auto and Property/Casualty policy holders are probably going to be screwed in the sense that their policy premiums are probably going up no matter what happens. However, you could argue that AIG's too aggressive auto policy pricing and concentration of homeowner's insurance in high risk areas...both signs of bad corporate Risk Management...were part of the problem in the first place. Those customers would simply have to go to another company. In certain high-risk areas I believe that the individual state(s) have insurance pools for that kind of high risk insurance.
  • Worst case, if AIG had to declare bankruptcy and had to be liquidated, it could be arranged for other companies to assume policy liabilities. This is what happened in other insurance company failures, such as Executive Life. Yes, the federal government has allowed other insurance companies to fail in the past. AIG just happens to be the biggest.
I hope this answers your questions Lus.

My argument is that AIG should be bought outright by another company or broken up and sold. This would provide reasonable protection to current customers while not making all of us taxpayers defacto AIG stockholders. Would this "spook" the market? Yes...but guess what, it only forces the market to face reality: there is $hitty corporate governance out there. Big freak'n surprise. My company has to raise capital by selling stock or borrowing at market rates...why should AIG be given a competitive advantage in the form of federal money?

Last point: The exectutives in charge of these failing companies should be in jail. I know...making incredibly bad decisions isn't a crime...but in a sense they are committing fraud on a grand scale. They got all the perks from their high positions...maybe it's time they also felt the other side of the equasion.

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"Hope at least gives you the option of living" - Harry Nilsson
LusOnlyVoice


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RE: Fed 80% Takeover of AIG: Disgusting, Just Disgusting
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Yes Ag you did answer my question ... we were somewhat worried about what would happen to his life insurance should this comapany fail ... but you have helped us to understand ...

Thank you!

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