The latest observation on our depressing economic reality, behind the glitzy headlines and the 3D TV screens, comes from Bloomberg's Jonathan Weil who rightfully asks "if AIG executives repeatedly claimed the stock was worthless, how do the executives, auditors, regulators, and, ultimately, the government, still have the balls to indicate the company's stock has any intrinsic value, both its publicly traded version and its book equity." Weil also joins the long list of people who wonder, just what the hell is the SEC's function in this day and age, when publicly-traded companies, many of them government backstopped, can disclose anything and everything they desire, even when such disclosure is flawed and purposefully misleading (see Bank of America and the earlier piece on a lying Tim Geithner and the very same AIG) with absolutely no repercussions. It is all really getting just far too depressing for US taxpayers to even be indignant. Maybe that has been the point all along...
One line of attack indicates a level of complicity by none other than AIG auditors PwC:
It’s now public knowledge that AIG was arguing to the government’s special master for executive pay last summer and fall that its common shares were worthless, and that its top managers therefore should receive their salaries all in cash rather than partly in stock. This revelation came thanks to Steven Brill’s article in last weekend’s New York Times magazine. Brill’s primary source was impeccable: Kenneth Feinberg, the pay czar himself.
There’s an important angle to this story not addressed in Brill’s article. If top AIG executives believed the common stock was worthless, why did the company keep issuing financial statements that still showed billions of dollars of common shareholder equity? If the Securities and Exchange Commission isn’t digging into this question already, it should be. So should AIG’s outside auditor, PricewaterhouseCoopers LLP.
“Worthless” is the word Anastasia Kelly, AIG’s general counsel and vice chairman at the time, used during the company’s compensation negotiations, according to Feinberg. We also learned from Brill’s article that Federal Reserve Bank of New York officials agreed with AIG’s position, after the Treasury Department told Feinberg to consult with them.
The next angle, of course focuses on the equally useless figurehead of incompetence, Mary Schapiro. Weil's questions merit a serious answer from at least the SEC, which is willfully allowing this charade to continue, and fooling misguided and less than sophisticated investors to pad the pockets of those who know what is really going on.
It remains a mystery to me why AIG still trades for about $29, giving it a market cap of more than $20 billion, considering that the company has needed four government bailouts valued at more than $180 billion. It shouldn’t surprise anyone that senior AIG executives harbored similar feelings. For AIG to pay back even part of the government’s money, it probably would have to massively dilute existing shareholders by selling new stock, which itself may not ever be possible.
Weil's conclusion, which is depressing in its own, as it highlights what we have been claiming for so long, that the US market, far beyond a mere ponzi, has left investors to fend entirely for themselves, as the regulators have been completely subsumed by Wall Street's "last minute thievery" apparatus before it all goes to hell, is as follows:
While many financial companies’ stocks and bonds have soared since last spring, that’s not necessarily because their fundamentals are so great or their numbers are so credible. The main thing propping them up is the promise that the government will backstop companies it deems too important to fail. Take away that support and market confidence would go with it, because investors still wouldn’t know which companies’ books to trust.
At least at AIG, some of the secrets are starting to come out. Fed and Treasury officials should feel ashamed for letting AIG’s bosses keep them from the public for so long.
Good luck to anyone at the SEC who feels inspired to investigate this can of worms.
The latest twist in the AIG saga provides a reminder of one of the fundamental flaws in the government’s bailout efforts. Rather than insisting that failing banks and insurance companies come clean about the rot on their balance sheets as a condition of accepting taxpayer money, the government plied them with cash first and let them keep their true financial condition hidden.
Moral hazard reigning supreme, regulatory capture, incompetence, misdirection, and outright fraud, auditor complicity, broken equity markets, and an administration whose only answer to every problem is to stuff it ever deeper under the carpet and throw ever increasing amounts of money... This is what this once great nation has become.