Noam Scheiber On AIG - Almost Original, But Not

Noam Scheiber of TNR tries to deliver a new take on the collapse of AIG and gets off to a promising start:

What went wrong at AIG? Since the uproar over the firm's bonuses, it's become fashionable to distinguish between the masters of the universe at AIG Financial Products, the subsidiary that nearly torched the global economy, and the working stiffs at the rest of the company. So compelling is this dichotomy, in fact, that even the AIG basher-in-chief has invoked it. "You've got a company, AIG, which used to be just a regular old insurance company," President Obama explained during his recent "Tonight Show" appearance. "Then they decided--some smart person decided--let's put a hedge fund on top of the insurance company and let's sell these derivative products to banks all around the world."

Here we go!  Finally, a big time reporter is going to tackle a question that has been vexing me - who broke AIG?  The government has reportedly lent them roughly $180 billion dollars, yet only about $80 billion (Only!) has gone to AIG Financial Products, supposedly the cause of the AIG disaster.  Government loans of $44 billion (as of December) were propping up the staid securities lending activity undertaken by the boring, regulated insurance side.  Per this report, $20 billion of government aid went to capital contributions to the insurance subs which, per the earnings report, realized $44 billion in capital losses last year outside of AIG FP.  Finally, someone is going to explore why the rest of AIG went awry!

Psych!  Instead of carving a new trail and explaining how a boring insurance company lost so much in its boring, regulated businesses Mr. Scheiber puts AIG FP on the couch and wonders where the controls broke down in that unit.  Whatever.  He mentions this three-part WaPo series (1, 2, 3) from last December but does not go substantially beyond it.

Mr. Scheiber's version is comofort food for those who believe that more regulation is always the answer.  Pondering the failures in the highly regulated insurance subs is not nearly as comforting.

[end of thread]

Comments

[bad]

Who broke AIG?

Chanelling my children from years ago: I didn't even know AIG existed!!!

[clarice]

I have a splitting headache, don't ask me........

[Greg Toombs]

Well, with regulation one is assured there is always more to do...

[MayBee]

The pension story is working its way through JournoList. Ezra Klein is on the case.

[bad]

Ha Ha Maybee, Klein proclaims Orzag to be a prophet. I guess he missed Orzag's Social Security prophecies.

[vinman]

I don't think we can expect any answers about why the larger, regulated AIG operations received the majority of the government "investment" until, say, after the elections in 2012.

[bad]

Tim Geithner’s new nominee for number two at the Treasury Department, Neal Wolin, played a key role in drafting legislation in the late 1990s deregulating the banking system, a former Treasury Department official confirms to us. The law that Wolin helped draft has been blamed by some critics, many of them Democrats, for easing up regulatory pressure on huge financial institutions, tangentially helping create today’s mess — and his role drafting it could come under questioning at his upcoming confirmation hearings.

This dude is controversial!!!

LUN

[Jack is Back!]

Tom, do you really want to know?

Then go out and buy Janet Tavakoli's "Dear Mr. Buffett", turn to page 164 (if you so inclined to miss all the prelims) and read on.

Janet is a Chem. Eng. who turned to structured finance much in the same way an accountant decides to become a faith-healer and pitch his revival tent outside of town - because that is where the money is.

[glasater]

Here is an interesting "take" on AIGFP:

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.

AIG was Responsible for The Banks Jan & Feb Profitability

[bad]

Sebelius owes back taxes. LUN

[WestWright]

Tom, great job on the Pension Fund and the Big Liars @ UrinaLList. Your take on current Economics/Policies has been very helpful.

[Charlie (Colorado)]

Creutzfedlt-Jacob.

"Fast acting prion disease" is pretty durn unlikely though. I think all the prions should be considered toxins anyway.

glasater, that's been around for a couple of days and was discussed quite a bit on the financial nets yesterday. It's been fairly thoroughly debunked; no one else is reporting it (except to say Zero Hedge is reporting it), the numbers don't seem to add up.