I am not arguing that A.I.G. was an innocent in the economic debacle of 2008. But unlike its trading partners, it neither created garbage mortgage securities nor peddled them to unsuspecting investors. Its error — a whopper for sure — was not recognizing that it was the patsy at the poker table when it insured those troubled securities. [ Gretchen Morgenson, NYT]
Oh my! All AIG did was reap ENORMOUS profits writing unregulated insurance policies (in the form of derivatives) which it did not have reserves to pay, on financial assets it did not research, irresponsibly and probably illegally implicitly using the credit value of its regulated insurance business as backup, in order to facilitate bank evasion of regulatory requirements. And after booking immense profits and paying out obscene bonuses to the management who sold these policies the company collapsed when it turned out that the banks were not paying AIG insurance fees just to be nice but to cover an actual risk that AIG didn’t fucking bother to evaluate because it was too happy with the money. And then when AIG could not pay, its imminent bankruptcy threatened to pour tanker loads of gasoline on the burning finance industry in 2008, so the US Government had to step in and save the company. AIG default on those derivatives would have probably caused major European banks to collapse and also triggered mandatory panic sales of assets by insurance companies and pension funds that were only permitted to own AAA rated assets. Fortunately the Government offered AIG assistance at punitive rates and secured, in the end, a strong profit for taxpayers as the price of this rescue. And now the entitled shareholders are back at the trough, demanding $40billion more for their inept, careless, and probably criminal supervision of AIG and the New York Times Gretchen Morgenson, wants us to feel that AIG didn’t do anything wrong when the big bad gummint made them suffer some consequences.
Oh. Well. Let’s all scream about Geithner again.