Misery Index

Why have they gone through the first $61 Billion so fast?

Securities lending involves both lending securities and investing collateral for a return.  If the value of the collateral declines, as it has for AIG and many others, the investor needs to make up the difference when the borrower returns the securities.  AIG's securities-lender clients flooded the program for their collateral, creating a "mini-run" on the bank, a chief financial analyst of the Texas Department of Insurance stated.

AIG is increasing borrowing while racing to sell assets to meet massive demands for cash from its trading partners.  The reason they are scrambling for cash is that many of AIG's swap agreements require it to post collateral to the owners of the swaps whenever prices of insured investments fall.  Those amounts over the past few weeks, have grown substantially. 

And why do they need more money?

So they can buy back their securities and give those securities to the Feds to get their additional cash.

A year ago, AIG's stock hit a 52-week intraday high at $70.13.  On September 16th, AIG's stock plummeted to a 52-week low at $1.25  Today, AIG's shares closed down 25% on day at $2.39.  Interest on a $85 Billion loan at today's rates is about 12.82% or a bit over $10 Billion; on $122.8 Billion, the interest is nearly $16 Billion.

Is The Party Really Over?

Bloomberg reported on October 9th that AIG said today it will cancel most of its planned meetings and conferences.  CEO Liddy "ordered the immediate cancellation of all outside meetings, conferences, and recognition events across AIG, except those required by law or that are deemed absolutely critical to sustain our ongoing business needs," spokesman Ashooh said in an email.

St. Regis Resort, Monarch Beach, CA

On September 22nd to September 29th AIG held an "AIG Independent Agency Convention" at the exclusive St. Regis Resort in Monarch Beach, CA to the tune of over $440,000 which included $24,000 in spa fees.

When the Oversight Committee learned about this "Convention", they were outraged.  "This is unbridled greed," said Congress Mark Souder (R-IN), "it's an insensitivity to how people are spending our dollars." "Have you heard of anything more outrageous?" said Rep. Elijah Cummings (D-MD).    Dana Perino, White House spokeswoman stated, "I understand why the American people would be outraged," she said at a White House briefing. "It's pretty despicable, to realize how callous somebody might be."  And the press, media outlets, and bloggers had a field day with it.  You can read my previous posts about it here and here.

Ashooh has stated that we, by not understanding how this system works, have "perception" problems... I kid you not.  Hear it in his own words below.  And remember this is the same guy who stated the following about AIG employees and the bailout,  "It's still painful and it's been very distressing to our employees."  And he also stated in regards to the $440K "Convention" at St. Regis, "It's as basic as salary as a means to reward performance."

On thing I learned about Ashooh, is that he just joined AIG in September 2008 (but perhaps as early as August, but not formally announced based upon some press releases found in August), but not as a simply PR guy,  as Senior Vice President, Communications, who reports directly to AIG President and CEO Sullivan.  His responsibilities include corporation and employee communications, publications, advertising and global branding, medial and public relations, marketing communications and the AIG archives.  He will have management responsibility for communication policies, programs and activities undertaken by AIG subsidiaries domestically and overseas.

Ritz-Carlton, Half Moon Bay, CA

Then it was learned that there was to be another "Convention" at the Ritz-Carlton, Half Moon Bay, CA next week.  An official spokesman for AIG stated "It's very much accepted practice in the insurance business, especially to reward high-performance individual agents."  "It's still painful and it's been very distressing to our employees."  It was estimated that the event, designed to "motivate and educate" about 150 independent agents that sell AIG coverage would include about 50 AIG employees, again all the expenses paid for by AIG.  The meetings purpose was to "introduce new insurance products to salespeople who specialize in wealthy clients."  AIG's Joe Norton, director of public relations, had previously stated, "This is an annual affair.  It's a key meeting."

"I cannot fathom how in the same day - the very same day that AIG asked the government for another $37.8 billion loan, the company would even consider moving forward with plans to host another large conference at another luxury resort," said U.S. Rep Cummings (D-MD) of the Oversight Committee.  You can read a previous post about it here.

The media outlets, bloggers, and taxpayers again had a field day over it however, it seems someone has at least some sense at the top, or either they don't have the money to pay for it, as the event has been canceled.  Or maybe they were afraid half the country would show up at Half Moon Bay protesting.  Officially however, Joe Norton stated the cancellation was done "after a re-evaluation of the costs under the new circumstances."

AIG's spokesperson, Ashooh,  said that the company will have to pay some cancellation fees, but admitted that the era of fancy conferences and $23,000 spa bills seemed to be over.  Ashooh also stated it has instructed its worldwide managers to re-scrutinize how money is being spent.  The company would not specify how much money would be lost in cancellation fees.

"We'll certainly lose some money in cancellation fees, but it's just beyond the point of trying to conduct these meetings given the uncertainty that's taking place," said Ashooh, spokesperson for AIG.  Ashooh added, "We're certainly reviewing all our expenditures in light of financial circumstances and the fact that taxpayer dollars are helping to support AIG as we get through this difficult credit crisis."

At least one member of Congress was pleased at the news:

"I am somewhat relieved to hear that AIG has canceled their Ritz-Carlton conference, which was nothing less than a slap in the face of the American people," said Rep. Elijah Cummings (D-MD).  "I cannot fathom how in the same day - the very same day - that AIG asked for the government for another $37.8 billion loan, the company would even consider moving forward with plans to host another large conference at another luxury resort."

Marriott Marquis, Atlanta, GA

In addition to the two above "Conventions", there was found to be a third event in Atlanta, GA at the Marriott Marquis sponsored by FSC Corp, one of AIG's main securities subsidiaries.  This one was an annual "National Education and Business Conference" where at least 400 stockbrokers and their families were expected to attend the three-day conference, with FSC expected to pick up the tab.  A spokesman for AIG Retirement Services did state however, that attendees are expected to pay a "portion" of their transportation, room and related expenses although it was unclear exactly what the percentages or amounts were.  It is unknown if this event is still on or has been canceled.  You can read a previous post about it here.

Smithsonian, Washington, DC

Now there is a NEW report of an AIG subsidiary partying only days after the bailout.  On September 20th, only FOUR DAYS after the Fed's bailed them out, a subsidiary of AIG International Lease Finance Corp. (ILFC) was celebrating its 35th anniversary at the Smithsonian National Air and Space Museum outside Washington D.C., including 820 guests at the museum's Udvar-Haze Center.

A spokeswoman for the Smithsonian, Claire Brown, stated that ILFC paid the Smithsonian $27,103 just for janitorial and security services.  The amount for catering, food and drink and two night stay hotel bills is unknown.  Apparently Waxman and his Committee on Oversight and Government Reform hasn't heard about this yet.

A few stats about ILFC.  Rumor has it that ILFC has wanted to split away from AIG for sometime, as they were worrying about AIG lowering ILFC's credit rating.

In Other AIG News

Many fingers had been pointing at Joseph Cassano, head of the financial products division of AIG, which trafficked in credit-default swaps, or CDS,  for the downfall of AIG.  According to Rep. Jackie Speier (D-CA), Cassano received more than $280 million over eight years.  After the unit lost $11 billion, Cassano was fired on February 29, 2008, but still received a $34 million bonus.  Another source states that he would "retire" at the end of Marcy, 2008.  He was re-hired as a consultant to AIG, making $1 million a month.

Joseph St. Denis, a former AIG auditor, said in written testimony to the committee that he resigned in protest after financial products head Cassano denied his input on how the firm valued its liabilities.  "I was concerned that you would pollute the process," Cassano told St. Denis, according to Waxman on the Oversight Committee.

The Oversight Committee asked former AIG chief executives Michael Sullivan and Robert Willumstad, if they had exercised their authority to fire Cassano from his consultant's role, given all the damage he had brought to AIG.  "No," they both said.  Waxman (D-CA) asked WHY the didn't fire Cassano.  Sullivan replied they needed to "retain the 20-year knowledge of the transactions" and "it was important to keep the existing employees" in the unit.   Waxman was impressed.  "When I retire I want to come work for you at $1 million a month," he said.  Waxman then rhetorically asked "What would he have had to have done for you to fire him?"

Wednesday this week, Treasury Secretary Henry Paulson terminated Cassano's contract.  [So, the Treasury Secretary CAN fire people who have loans to the Feds, eh?]

"Why they kept him around?  I can only speculate but my guess is he knows where the bodies are buried.  He knows where all these contracts are, what they may be valued at who did them, it's a very unregulated market, "says David Callaway of MarketWatch.

Cassano worked out of the London office.  There were 377 people working under him.  According to AIG files, on average, each person in his unit made more than $1 million a year.  And for every dollar his financial products unit made, 30 cents came back to Cassano and other top execs.

Oh, and I found these little tidbits.

"Five guilty of fraud that led to AIG chief's fall" - Dated February 26, 2008.

AIG is facing probes from the SEC and the Justice Department in the way the firm valued credit-default swaps. 

When Robert Willumstand blamed the problems on financial disclosure laws, Lynn Turner, the former chief accountant at the SEC replied, "That's like blaming the thermometer, folks, for a fever."

RANT ON

Why is AIG's stock plummeting?  No bailout is going to save this company and it will be $85 billion, $122 billion in junkets at the end.  Businesses go bad due to honest mistakes or bad business, but I'm really starting to hate AIG for greed and greed and more greed.  In the corporate world, you don't think of how you hurt people financially or mentally, well.. welcome to the real world AIG, "Main Street" would love to see you hurt financially and live with the guilt for the rest of your lives.  And I believe that all the execs of AIG, with the perhaps exception of Willumstad since he was only at the company since June 2008, should NEVER be allowed to work in a financial field again or as a consultant to a financial institution/bank/investment/life insurance, etc.  And that even means a job as simple as a bank teller.  And as for Willumstad, yes he can work in a financial field again, however, he can never ever receive company stocks are a bonus, incentive, or for any reason.  Actually, I think that's a good idea.  No high-level execs can own stock in their own company UNLESS they started/founded the company.  - Rant Off.

SOURCES:

• OC
• ABC News
• Wall Street Journal
• CNN Money
• Reuters
• Hartford Courant
• KGO-TV, San Francisco, CA
• Times Online
• Bloomberg
• Bloomberg
• Workers Comp Insider