It sounded like an Enron Raptors deal all over again.
In 2000, Gen Re agreed to buy $600 million in reinsurance coverage from AIG creating the appearance of a $100 million risk. But secretly it was no risk at all because AIG agreed to return the fee and pay Gen Re $5 million for the deal to boot.
So did the collateralized debt obligations (CDOs) which AIG liked to insure because you didn’t have to own the illiquid paper and taint your balance sheet with risk–and if their credit ratings tanked, swap owners still got face value.
But the same leverage, deception and hubris which demolished Enron caught up with AIG.
Like Enron, AIG directors might have been the smartest guys in the room but their risk control model did not even acknowledge the possibility of people defaulting on their mortgages.
People don’t do that.
Nor did it expect parties to take out risk free, pox-on-your-head credit swaps on AIG itself. Oops.
But whereas Jeffrey Skilling and Andrew Fastow are sequestered at Club Feds–as are other white collar criminals like Bernie Ebbers and Conrad Black– AIG’s founder Maurice “Hank” Greenberg still had $49.6 million of his $1.25 billion in September according to the New York Times.
Despite being ousted as AIG Chairmen and CEO three years ago–a collar of the Sheriff of Wall Street, Eliot Spitzer, before he was a collar.
And despite the gift of $122 billion of US tax payer money to AIG.
While the other Hank, Treasury Secretary Henry Paulson said the bailouts were necessary because AIG is too big to fail, recent accounting irregularities–called “mark to market” valuations until the handcuffs come out–imply AIG is also too big to play fair.
But that did not stop an AIG hunting party to Dorset, England in October that cost US tax payers $86,000.
After receiving an emergency $85 billion loan in September and asking for $37.8 billion more weeks later (request: granted!) AIG’s Sebastian Preil, Jeffrey Malkovsky, John Roberts and friends picked off partridges to their hearts’ content outside of Salisbury, Wiltshire in October on the tax payer dime.
“The recession will go on until about 2011 but the shooting was great today and we are relaxing fine,” the UK site News of the World quotes AIG Frankfurt manager Sebastian Preil quipping as he pulverized French red leg partridges at the Stoke Drove shoot. “We have been given $85 billion from the US bank to help us out but we should be on an even keel in two years.”
“It has been a fantastic day,” concurred Hilary James, the general manager of New York’s Bristol Plaza Hotel described by News of the World reporters as a “boisterous lady in her late 40s from Wiltshire [who] was more interested in talking about the birds she’d killed than the economic crisis.”
“We got plenty of shooting in as the weather was fine. We love it here,” she said, thankful to US tax payers.
AIG gratitude at the bailout brings to mind Dick Cheney’ pheasant hunt on the day he and George W. Bush were re-elected in 2004.
The Veep commandeered Air Force Two to the Pierre, SD airport–thank you tax payers– where a motorcade sped took him to a hunting lodge in the Gettysburg area even before John Kerry and John Edwards’s concession speeches.
This was after Cheney’s risk free pen-raised pheasant spree at Rolling Rock Club in Ligonier Township, PA in 2004 but before he shot hunting buddy Harry Whittington in Kenedy County, TX in 2006.
Unfortunately, Cheney’s defibrillator machismo which brought us the war in Iraq failed him after shooting one too many pheasants and he was rushed to George Washington Medical Center where he was hospitalized for shortness of breath.
“Sorry we ruined your Saturday,” Lynn Cheney told reporters at the hospital where Jay Leno used to joke Cheney had a reserved parking space. Cheney was going to be fine and he got plenty of shooting in, she said.
MARTHA ROSENBERG is staff cartoonist on the Evanston Roundtable. She can be reached at firstname.lastname@example.org