19 Feb 2009
Segements from, “What Cooked The Global Economy” by James Lieber
“The heart of darkness was the AIG Financial Products (AIGFP) office in London, where a large proportion of the derivatives were written. AIG had placed this unit outside American borders, which meant that it would not have to abide by American insurance reserve requirements. In other words, the derivatives clerks in London could sell as many products as they could write—even if it would bankrupt the company.
The president of AIGFP, a tyrannical super-salesman named Joseph Cassano, certainly had the experience. In the 1980s, he was an executive at Drexel Burnham Lambert, the now-defunct brokerage that became the pivot of the junk-bond scandal that led to the jailing of Michael Milken, David Levine, and Ivan Boesky.
During the peak years of derivatives trading, the 400 or so employees of the London unit reportedly averaged earnings in excess of a million dollars a year. They sold “protection”—this Runyonesque term was favored—worth more than three times the value of parent company AIG. How could they have not known that they were putting at risk the largest insurer in the world and all the businesses and individuals that it covered?”
“People still seem surprised to read that hedge principals have raked in billions of dollars in a single year. They shouldn’t be. These subprime-time players knew how to score. The scam bled AIG white. In mid-September, when it was on the ropes, AIG received an astonishing $85 billion emergency line of credit from the Fed. Soon, that was supplemented by another $67 billion. Much of that money, to use the government’s euphemism, has already been “drawn down.” Shamefully, neither Washington nor AIG will explain where the billions went. But the answer is increasingly clear: It went to counterparties who bought derivatives from Cassano’s shop in London.”
“Secrecy shrouds the bailout. The 21 banks that each received more than $1 billion from the Fed won’t disclose how, or even if, they’re lending it, which hardly quells fears of hoarding. The Treasury says it can’t force disclosure because it took only preferred (non-voting) stock in exchange for the money.
If anything, the Fed had been less candid. It stonewalls requests to reveal the winners (mainly banks and corporations) of $1.5 trillion in loans, as well as the securities it received as collateral. A Freedom of Information Act (FOIA) suit to obtain this information by Bloomberg News has been rebuffed by the Fed, which insists that a loophole in FOIA exempts it. Bloomberg will probably lose the case, but at least it’s trying to probe the black hole of bailout money. Of course, Barack Obama could tell the Fed to release the information, plus generally open the bailout to public eyes. That would be change that we could believe in.”
6:49 PM
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Feb. 21st 2012
Don’t worry AIGFP is still doing great!!
http://www.barrack.com/Featured-Case-AIG.html
“In In re American International Group, Inc. 2008 Securities Litigation, Barrack Rodos & Bacine serves as Co-Lead Counsel on behalf of the Lead Plaintiff, The State Treasurer of Michigan, as custodian of the Michigan Public School Employees Retirement System, the State Employees’ Retirement System, the Michigan State Police Retirement System, and the Michigan Judges Retirement System (“SMRS”). This securities fraud case seeks compensation for American International Group (“AIG”) investors who lost tens of billions of dollars after the full extent of the risks arising from AIG’s exposure to the U.S. residential housing market, including subprime mortgage debt, was revealed, leading to a massive liquidity crisis for AIG that would have forced it into bankruptcy proceedings were it not for the $85 billion U.S. Government bailout announced on September 17, 2008.”
