Guest Post: AIG Chairman Says That You Just Don’t Get It

Submitted by Finance Addict

AIG Chairman Says That You Just Don’t Get It

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.

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

• It’s been almost three years to the day since AIG was bailed out. And guess what? AIG stil 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 horrible–taxpayers 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:

• Except for a brief period in the 1980s, the official unemployment rate is still at the highest level since the Great Depression.
• Never before have we seen so many out of work for so long.
• The unofficial unemployment rate, including those forced to work fewer hours, is almost double the official rate (17% vs. 9%).
• A record 49 million Americans are living in poverty.
• The poverty rate among children is 18.2%.
• Almost 46 million people–close to 15% of the country–were on food stamps.

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.

Comments

[Swarmee]

"if Wall Street had been allowed to just implode. I think it would have been devastating for our whole economy"

This is exactly the problem. Companies like AIG setup up a financial bomb that nearly took out the entire economy but we're supposed to be happy that diffusing that bomb only destroyed millions of jobs and added massive amounts of public debt?

Why is this guy allowed to walk the streets? Ordinary citizens can be charged with reckless endangerment even if no one is killed or injured because of dangerous actions, how is nearly collapsing the national economy not reckless endangerment on a massive scale? TBTF means time to breakup and prosecute.

[Jena]

OT but someone else who didn't get it:  Realty Trac just noted that Steven J Baum PC has been blacklisted by Freddie Mac for any future foreclosure cases (as of 11/10/11).  I guess the publicity of the Halloween party photos from a year ago were a little too much heat, not to mention the errors in legal filings that cost the firm $2 million in legal settlements.  Oops.

http://paper.li/RealtyTrac/1306363512?utm_source=subscription&utm_medium=email&utm_campaign=paper_sub

[Bob Sacamano]

"I’ve got to ask you about Occupy Wall Street, because that was big news yesterday–it still is big news today"

The premise to the interview is incorrect.  OWS is not big news (especially at this point).  It is only big news in the minds of the MSM -- they want it to be big news. It is a few hundred of people in NYC and a couple of thousand nationally in a nation >300 million people.  Despite the massive free publicity being lavished on them by the MSM (who is generally cheering for growth in their numbers),  they still have virtually no traction. 

Their only clear message is discontent -- but that has been a malady for many centuries throughout the world.  They have no clue that even in their "lowly estate" they enjoy top quartile living standards in the world today.  

Despite the student loan financed college education, they can't formulate an articulate rationale on why they are protesting besides they are not happy and want more (preferably coming from someone else).

[Dr. Acula]

http://mises.org/Books/humanaction.pdf

"if a manager is given a completely free hand, things are different. He speculates in risking other people’s money. He sees the prospects of an uncertain enterprise from another angle than that of the man who is answerable for the losses. It is precisely when he is rewarded by a share of the profits that he becomes foolhardy because he does not share in the losses too." - Ludwig von Mises

[oregonjon]

Tyler

You are usually very astute but here your head is where the sun don't shine. When the government "lent" AIG all those billions they also took, nay stole, 79.9% of the common shares. In a very real way the government, as the controlling shareholder, owes the money to themselves.

The government has wanted to reduce the amount owed by selling their shares into the market. That has not gone as the government planned. Gee, the government not being able to operate effectively in the real marketplace. Whoodathunk.

Miller's remarks, of course, follow the government's line, that a few brave and foresightful souls like Big Hank and Tiny Tim saved the world from collapse. That is far from clear. The world would almost certainly not have collapsed had AIG tanked. The operating insurance companies were then, as they are now, adequately capitalized. Life would have gone on in AIG's core businesses.

What would have occurred is that Goldman, many European banks and others would have settled their AIG obligations at a fraction of what the government doled out. By interjecting themselves into a situtation of extreme illiquidity the government made matters worse, not better. But Miller, as AIG's chairman, works for the major shareholder and as such can hardly to anything other than barf the government's fantasies.

Someday the full story can be told, but for now the Occupy crowd thinks their are doing something meaningful when they display their ignorance of business, public health and personal hygiene. But to be fair the Occupy group truly did make a big stink.