AIG chairman says that you just don’t get it

It’s been almost three years to the day since AIG was bailed out. And guess what? AIG still owes taxpayers $49.4 BILLION! That’s more than half the budget of the Department of Education. What was that about taxpayers getting their money back, Steve? It’s not that we don’t “understand how this country works”, Steve. We understand it all too well–it works for you and your buddies on the AIG board. It’s not working out so well for the rest of us.

By Finance Addict

Steve Miller is the chairman of AIG. Between 2008 and 2009 AIG received $97.8 billion in loans from the Fed plus four bailouts totaling $69.8 billion in taxpayer money. This is what Steve had to say yesterday when asked by Bloomberg TV’s Betty Liu for his views on Occupy Wall Street. The emphasis is mine.

BL: Steve, before I let you go, I’ve got to ask you about Occupy Wall Street, because that was big news yesterday–it still is big news today, but you know, these guys that are down there–these men and women down on Occupy Wall Street–are complaining about the very companies, like yours, AIG, that needed the federal bailouts and they’re saying because of that, we don’t have a job any more.

SM: Well, unfortunately I would say the understanding of the Occupy Wall Street crowd of what makes our country work is probably fairly limited. It’s a very simplistic view of things. No one will ever know what would have happened to our country and our whole global financial system if AIG had  been allowed just to go down. All I know is that over a long weekend some very serious people in Washington, Hank Paulson and Tim Geithner and so on, made the decision to bail out AIG. They did it in a way that protected the interests of the taxpayers so that they would have the prospect of recovering all the money and that is our principal objective and we think we’ve got it in sight that we could make sure that every taxpayer got back every penny that went to AIG. And, so if it helped prevent a meltdown of the system, and you got your money back and a profit, hard to argue–

BL: [interrupting] But that’s lost on them, though.

SM: Of course it’s lost on them. They think, ‘You know, why are you bailing out Wall Street and not Main Street.’ And you have to have a view as to what would have happened if Wall Street had been allowed to just implode. I think it would have been devastating for our whole economy and that would have been far worse for Main Street than what did happen.

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What can one say to this without resorting to profanity? A few things.

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  • It’s been almost three years to the day since AIG was bailed out. And guess what? AIG still owes taxpayers $49.4 BILLION! That’s more than half the budget of the Department of Education. What was that about taxpayers getting their money back, Steve?
  • A significant amount of the aid–$52.5 billion–was pumped into special purpose vehicles created by the Federal Reserve  Bank of New York to take dodgy mortgage bonds and other loan-backed securities off of AIG’s balance sheet and the balance sheets of its Too Big To Fail bank clients. Part of this constituted a back-door bailout of American and European banks. To get its money back the Fed will have to wait until these questionable securities mature, hoping that they don’t default in the interim, or sell them in the markets. The Fed tried to sell some earlier this year and, lo and behold, it didn’t go so well. It’s very difficult to say when and whether this money will be recouped.
  • What did U.S. taxpayers get for the rest of the money given to AIG? Unsecured interests. We now own about 77% of the company via preferred and common shares. This means that should AIG go bankrupt–and by the way, their latest numbers look horribletaxpayers will be among the last to be repaid. They’ll stand near the back of the line and watch as bondholders and other secured creditors get their money back first. How’s that for taxpayer protection?
  • Experts say that we need to sell the AIG shares for an average of $28.72 in order to break even. What’s the 200 day moving average of the stock? $23.02. And this is before the end of the slow motion train wreck known as Europe. As I mentioned yesterday, American financial institutions’ exposure to Europe could be as high as $767.5 billion. If things really jump off in Europe, we’ll be in for chaos in the U.S. stock markets. Even if things don’t collapse we cannot just dump 77% of the company on the market; we’d need to sell in smaller lots over time. Long story short, we won’t see this money back for quite some time, if ever.

Finally, intentionally or no, the rest of Steve’s comments imply that the crisis brought on in part by decisions made at AIG were not devastating to millions of Americans. And yet:

It’s not that we don’t “understand how this country works”, Steve. We understand it all too well–it works for you and your buddies on the AIG board. It’s not working out so well for the rest of us.

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10 Comments
  1. Pacioli says

    It’s a fair enough criticism of the veracity of Miller’s comments regarding the payback.

    But it’s quite a stretch to link the 6 items at the end of your article even loosely to the AIG bailouts.

    Additionally, your article fails to contemplate whether those 6 items would look any different, had AIG been allowed to fail. My guess is that they would not. But some treatment of these considerations must be offered, if your premise is to be taken seriously.

    1. WagDog says

      Excellent use of the false dichotomy – there are only two choices:

      (a) bailout AIG in such a way that tax payers must suffer for any and all losses
      (b) let AIG fail in such a way that causes financial Armageddon in a collapse so rapid that no government can respond quickly enough

      All other options are off the table, because I say so. Since (b) is so horrible then (a) must be the right choice for everyone concerned. QED.

  2. Pacioli says

    It’s a fair enough criticism of the veracity of Miller’s comments regarding the payback.

    But it’s quite a stretch to link the 6 items at the end of your article even loosely to the AIG bailouts.

    Additionally, your article fails to contemplate whether those 6 items would look any different, had AIG been allowed to fail. My guess is that they would not. But some treatment of these considerations must be offered, if your premise is to be taken seriously.

    1. Anonymous says

      Excellent use of the false dichotomy – there are only two choices:

      (a) bailout AIG in such a way that tax payers must suffer for any and all losses
      (b) let AIG fail in such a way that causes financial Armageddon in a collapse so rapid that no government can respond quickly enough

      All other options are off the table, because I say so. Since (b) is so horrible then (a) must be the right choice for everyone concerned. QED.

  3. David Lazarus says

    The real reasons that AIG were bailed out were not that it was systemically important but that it owed billions to Wall Street whose bets would have wiped out many of them, secondly AIG was the top airline insurer and if AIG collapsed it would have grounded most if not all of the worlds airlines. That should have ended with the takeover, but it remains so that there is an excuse to bail out AIG next time. 

  4. Anonymous says

    The real reasons that AIG were bailed out were not that it was systemically important but that it owed billions to Wall Street whose bets would have wiped out many of them, secondly AIG was the top airline insurer and if AIG collapsed it would have grounded most if not all of the worlds airlines. That should have ended with the takeover, but it remains so that there is an excuse to bail out AIG next time. 

  5. ChrisBern says

    Agree across the board.  Would add, though, that I can’t blame AIG for asking for a bailout, or even for defending their position afterwards.  I CAN blame the U.S. government for granting said bailout and putting the losses and risk of losses squarely on the taxpayers.  That should have never happened and should never happen again, though I’m sure it will because the government is more interested in protecting big banks as opposed to protecting the taxpayer.

    1. David Lazarus says

      But big banks are their paymasters so of course they will defend them. There needs to be a rule that beneficiaries of government money cannot lobby or donate to politicians. And companies that lobby cannot be the beneficiaries of government money either.  That would end much of the benefits right now for banks. 

    2. Edward Harrison says

      That’s also how I come out on this. It is natural that a company like AIG is going to lobby in their interest. It is up to government to ensure that they don’t get a deal they do not deserve. People blaming banks need to look at their supposed overlords in government and understand that the process has been corrupted. Banks will always be able to curry favor with Politicians but in the US the process has been so corrupted by money that it needs a wholesale reboot. I look to government as the place where the fixes need to come. They legislate, regulate and prosecute. The onus is on government.

  6. ChrisBern says

    Agree across the board.  Would add, though, that I can’t blame AIG for asking for a bailout, or even for defending their position afterwards.  I CAN blame the U.S. government for granting said bailout and putting the losses and risk of losses squarely on the taxpayers.  That should have never happened and should never happen again, though I’m sure it will because the government is more interested in protecting big banks as opposed to protecting the taxpayer.

    1. Anonymous says

      But big banks are their paymasters so of course they will defend them. There needs to be a rule that beneficiaries of government money cannot lobby or donate to politicians. And companies that lobby cannot be the beneficiaries of government money either.  That would end much of the benefits right now for banks. 

    2. Edward Harrison says

      That’s also how I come out on this. It is natural that a company like AIG is going to lobby in their interest. It is up to government to ensure that they don’t get a deal they do not deserve. People blaming banks need to look at their supposed overlords in government and understand that the process has been corrupted. Banks will always be able to curry favor with Politicians but in the US the process has been so corrupted by money that it needs a wholesale reboot. I look to government as the place where the fixes need to come. They legislate, regulate and prosecute. The onus is on government.

  7. RobertM says

    The argument that Wall Street was bailed out, but that Main Street was not, is exactly right. The argument that the bailout was necessary is also exactly right.  Punishing the bankers for their greed or mistakes might feel good, but won’t really help the rest of us. The problem is not that congress bailed out the banks, it is that they suddenly got very stingy when it came to the rest of us. Our choice is to look backward with anger, or forward with resolve.

    1. Pacioli says

      Robert –

      I could not disagree more with where you are coming out on this.

      “Punishing the bankers for their greed or mistakes might feel good, but won’t really help the rest of us.”
      This is asinine. Removing the perverse moral hazard would most definitely help the rest of us in the long run.

      “The problem is … that they suddenly got very stingy when it came to the rest of us.”
      How exactly would you implement the gov’t bailing out “the rest of us”. If you have practical proposals that are not fraught with a myriad of unintended consequences, then I’m all ears.

  8. RobertM says

    The argument that Wall Street was bailed out, but that Main Street was not, is exactly right. The argument that the bailout was necessary is also exactly right.  Punishing the bankers for their greed or mistakes might feel good, but won’t really help the rest of us. The problem is not that congress bailed out the banks, it is that they suddenly got very stingy when it came to the rest of us. Our choice is to look backward with anger, or forward with resolve.

    1. Pacioli says

      Robert –

      I could not disagree more with where you are coming out on this.

      “Punishing the bankers for their greed or mistakes might feel good, but won’t really help the rest of us.”
      This is asinine. Removing the perverse moral hazard would most definitely help the rest of us in the long run.

      “The problem is … that they suddenly got very stingy when it came to the rest of us.”
      How exactly would you implement the gov’t bailing out “the rest of us”. If you have practical proposals that are not fraught with a myriad of unintended consequences, then I’m all ears.

  9. Dana Gehres says

    Our government was very creative in correcting an absolute melt down that happened with the great depression.  You need the tools and entities that keep the econcomy functioning for the greater good.  This  article mentions AIG’s short comings but fails to see the dramatic improvement.  It also addresses the recent loss of AIG which is mostly tied to a mark to market verses an operational loss except for the ILFC portion.  I believe you should place some of your efforts on European companies such Allianz and their ties to the Euro zone debt.  This is a much bigger company than AIG and could have larger ramifictions at this point.

    1. David Lazarus says

      I agree about maintaining the banks and insurance companies for the greater good, but there really should have been much tougher terms for the bailouts. The airline insurance arm of AIG was essential, but the financial derivatives arm should have been wound down and insurance reregulated. It was a lost opportunity. The bulk of AIG divisions were both profitable and successful, and would do well if freed of  AIG. 

  10. Dana Gehres says

    Our government was very creative in correcting an absolute melt down that happened with the great depression.  You need the tools and entities that keep the econcomy functioning for the greater good.  This  article mentions AIG’s short comings but fails to see the dramatic improvement.  It also addresses the recent loss of AIG which is mostly tied to a mark to market verses an operational loss except for the ILFC portion.  I believe you should place some of your efforts on European companies such Allianz and their ties to the Euro zone debt.  This is a much bigger company than AIG and could have larger ramifictions at this point.

    1. Anonymous says

      I agree about maintaining the banks and insurance companies for the greater good, but there really should have been much tougher terms for the bailouts. The airline insurance arm of AIG was essential, but the financial derivatives arm should have been wound down and insurance reregulated. It was a lost opportunity. The bulk of AIG divisions were both profitable and successful, and would do well if freed of  AIG. 

Comments are closed.

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