AIG & Manchester United

[Bakes]

Kicker... you are the one saying the Holding company was overseeing "operations"... I never said that.  I

That's just dishonest.  I NEVER said that.  Show me where I said that.  You will not find it.  I've been saying the complete opposite from the start...adamantly.

Lawd fella...

I meant YOU are the one using the term "overseeing operations"... meaning that you interpret my position as saying the Holding company was overseeing the "operations" of AIGFP.  YOU are the one using the terminology "overseeing operations".  I never said they were "overseeing the operations" of the London Division... I said the London Division was subject to their oversight.  This is devolving into argument for argument sake

I said that a supervisory role of a holding company should never even be discussed because holding companies are not set up for that...

...and I never said they were 'supervising'... I believe all along I've been saying "oversight", there's a difference.  I won't go back over everything I said, but to the extent I said "supervise" anywhere OVERSIGHT is what I meant.  Supervision implies an active and ongoing position.  Oversight is periodic and as needed... such as when internal audits are necessary.

You're the one who brought all the analogies about the parent/supervisor trusting the sub...and all along I was saying that that analogy is irrelevant because a holding parent is not set up for that kinda role to begin with....

I don't know how many times I need to type the same sh*t.

And my point was that the holding company would largely leave AIGFP to its own affairs ("trusting" it).  You keep typing "the same sh*t" because you only see that one thing and think I'm arguing something which I'm not.  No one said a Holding company actively monitors (call it 'supervises' if you want) its subsidiaries.  All along I've been talking about oversight.  Hopefully this will put that issue to bed.

You came and spin around and sing a different song about UK & CT and how CT office was supervising/overseeing the UK office...now come back saying that you never implied any supervising/overseeing by the parent...I think you're confusing yourself here...I've been saying the same thing from the start.

I never said CT was supervising UK, I said CT was a sub-office of AIGFP.  I admitted some confusion as to whether there was another AIGFP (based in the US) that was aligned over those two AIGFP offices... there isn't.  To the extent there is any confusion it's likely the result of you not closely reading what I said.  Take a look at my original "naive assertion" as you derisively termed it:

If anything we should fault AIG (its investment arm in London, really) for writing too many CDS obligations adn for not properly checking the bond ratings of the loans it was insuring... but again, the parent company (AIG) had no reason to question the activities in London up to that point.  Not only were they profitable... but they never raised any red flags before.

[/color]

About AIG's credit risk managers...if they work at the parent company (I.E. the holding company...i.e. AIG Inc.), I'd be shocked...Holding companies consist of Presidents & Chairmen who run the boards of directors of their subs.  You realistically think that a sub has the power to keep oversight personnel (credit risk managers) from seeing their books?  If the owners of the holding company appointed a commitee of credit risk managers to oversee the books of AIGFP, it would have been done.... They are probably employed by AIGFP in their risk management department or some other division of AIGFP. 

...and this is just ridiculous now...

you can be as shocked as you want to be but this isn't news.  Did you even read the link I provided?

AIG chief executive Edward Liddy said moments ago that AIG's risk-managers were "generally not allowed to go into Financial Products."

Translation: AIG's Financial Products division -- the unit that sold more derivatives than AIG could back, nearly bringing down the company -- was not subject to AIG's own in-house risk-management scrutiny.

Notice he didn't say AIGFP's risk managers.  The 'translation' (by the blogger) then goes on to underscore the fact that AIGFP didn't allow itself to be subject to "AIG's own in-house risk-management scrutiny".  He didn't say it didn't allow it's own risk management team etc. etc.

[kicker]

Breds that link didn't say anything about risk management being part of the holding parent.  You show me where risk management oversight is responsibilty of a holding parent....Based on how a holding company is typically set up the connection that you're drawing is very far fetched.

The words "AIG in house risk management scrutiny" imply nothing about a holding parent...nothing

I'm convinced that you don't know how a holding company is set up, and how a parent sub relationship in a holding structure works.

FYI AIG has subsidiary called AIGRM (AIG Risk Management)..their in house risk management is more likely to be housed there...than at their holding parent.

[Bakes]

Breds that link didn't say anything about risk management being part of the holding parent.  You show me where risk management oversight is responsibilty of a holding parent....Based on how a holding company is typically set up the connection that you're drawing is very far fetched.

The words "AIG in house risk management scrutiny" imply nothing about a holding parent...nothing

I'm convinced that you don't know how a holding company is set up, and how a parent sub relationship in a holding structure works.

"Breds"... you can be convinced of whatever you want it's right there before your eyes.  If the risk managers came from within AIGFP it would have said so in the statement.  The implication is clear, the company sent risk managers to inspect "AIGFPs" books and were turned back.  But don't take my word for it... I doh know what ah holding company is or how it set up.

By fall, as the mortgage crisis began roiling financial institutions, internal and external auditors were questioning how A.I.G. was measuring its swaps. They suggested the portfolio was incurring losses. It was as if the company had insured beachfront property in a hurricane zone without charging high enough premiums.

...A.I.G. had come under fire for accounting irregularities some years back and had brought in a former accounting expert from the Securities and Exchange Commission. He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.

Note how they stressed that "the company" brought in an external auditor to check the books of "the company's financial products division".  They keep stressing that this is a relationship between TWO entities... "the company" and "the company's financial products division".  To paraphrase you, it is just "dishonest" and "not intelligent" to interpret that as meaning the same corporate entity.

When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

So Cassano blank de expert when he tried to examine how the valuation of the CDS portfolio was done... now you tell me, was this an internal expert (from within AIGFP) or an external expert brought in just to audit the process.  If he was brought in to audit the process... who brought him in AIGFP (who then turn around and blank him) or "the company"?

I'm really fighting the urge to be my old self... but I can guarantee you that I know a great deal more about how corporations are set up and structured than you will ever know.  I will cede you ground on accounting and financial audits because that's not my thing.  Corporate Law however I have a firm grasp of and all it concerns itself with is disputes that arise among parties whose relationships are dictated by the corporate structure into which they are chartered.

EDIT:

Sorry.. I forgot the link from where I got the above quote.

http://www.nytimes.com/2008/10/30/business/30aig.html?pagewanted=2&_r=1

[Bakes]

FYI AIG has subsidiary called AIGRM (AIG Risk Management)..their in house risk management is more likely to be housed there...than at their holding parent.

Again... you are reading what YOU want to read.  What I said is right there in my post:

The oversight I kept referring to was indeed from the holding company's headquarters in NY.  Not sure where in the org. structure they originated but credit risk managers were set on the trail of AIGFP but were denied access to AIGFP's financial records.

I was fuzzy on the details but that's the oversight I kept referring to.

If you can find for me where I said the Risk managers were "housed" in the holding company please point it out to me.  All I've been saying all along is "oversight"... the Risk managers were directed by AIG, Inc. to go check on the books of AIGFP.  I don't know where the Risk managers worked, I don't know where they ate and I don't know where they lived.  All I'm saying is that there was some oversight by an entity external to AIGFP, I attributed that entity to be AIG, Inc.  I said that oversight of AIGFP would be at their authority. 

You told me that you'd be shocked if that's where the Risk Management team came from and not from within AIGFP itself.  All I was told is that they were sent from NY.  I know the Inc.'s HQ is in NY which is why I said the "parent company" sent them.  I admitted that I wasn't clear on the details as to exactly where, what address they originated from... but it clearly wasn't Danbury, CT and wasn't London.

[kicker]

You told me that you'd be shocked if that's where the Risk Management team came from and not from within AIGFP itself.  All I was told is that they were sent from NY.  I know the Inc.'s HQ is in NY which is why I said the "parent company" sent them.  I admitted that I wasn't clear on the details as to exactly where, what address they originated from... but it clearly wasn't Danbury, CT and wasn't London.

Just because the oversight was initiated in NY...did it say that?, and the parent company is in NY, doesn't mean the oversight was initiated by the parent- again it seems like you're not understanding how a holding company is set up and how the parent sub relationship functions under a holding structure....or maybe I'm oversimplifying because I admittedly don't fully understand the complexities of AIG's corp structure...not sure if anyone on this msg board does.

From my undertanding a holding company is just a legal formation...in effect it would consist of ownership agreements and legal documents, Directors, Officers and in some cases some management- that's all.  No relativley significant assets (other than the shares of its subs), no personnel/staff making the decisions at the level that you're implying.  The directors & officers of the parent are ultimately the D&O's of the subs and they exercise their influence by running the boards of the subs, not necessarily as representatives of the holding company (parent), but as Board members/reps of the subs....The parent-sub relationship in a holding structure is not typically one of oversight at the level that is being discussed, because the holding company (parent) is set up ONLY to hold shares/voting rights, and consolidate the presentation of financial statements not to do the kind of oversight business as the parent that you imply...Holding companies don't typically have the resources to do (initiate) that kind of thing- the autonomy would realisitcally lie somewhat in one of it's operating businesses (a sub)....All business of the nature that we're discussing, in a holding structure is carried out by the subsidiaries.  In the case of oversight, there's probably (using a generic term) some sort of management company in place, or a corporate/non-revenue generating arm....or some oversight committee maybe appointed by each BOD that would initiate such... not the parent...audit committees are appointed by the BOD, and they deal with appointing auditors etc....Not the holding parent.  If you've worked for company that operates under a holding structure you'd know what I'm talking about.  Of course oversight policy at all levels is likely to be set at the parent level... runs through the entity to the highest rung, because in the end, it needs to be signed off at the highest point, but I'd be surprised if the ins and outs of it through the course of business are initiated at the parent level (if it's a holding company), as opposed to being delegated to the operating units.

Next time you get a chance, go to SEC.gov and go through the 10-k of a Holding company, and you'll see it is merely a consolidation of its subs....by itself, there's no revenue, expenses, assets or liabilities.  If a parent company is exercising the kind of oversight that you're trying to imply it would probably NOT be a holding company by definition..AIG inc. is a holding company that operates business through its many subsidiaries.

If you can consclusively prove otherwise (which that link does not do and I highly doubt anything will), then ok...but in the absence of that, the understanding of a holding structure and what a holding company effectively is, should deter you from making the assumptions that you make.  Given the complexity of AIG, by the sheer size of the company, there's a chance that it isn't as black or white as either of us see it though....which could probably partly account for why they're in this mess to begin with.

[Marcos]

I think y'all getting too hung up on this "HoldCo" vs "Parent" argument.
The fact is the company has a CEO and he is ultimately responsible for all AIG's operations.

Regardless of where the risk management was coming from, it was ultimately his responsibility.

This isn't some registered shell company with no real operations. This is an operating conglomerate with a CEO.

[kicker]

I think y'all getting too hung up on this "HoldCo" vs "Parent" argument.
The fact is the company has a CEO and he is ultimately responsible for all AIG's operations.

Regardless of where the risk management was coming from, it was ultimately his responsibility.

This isn't some registered shell company with no real operations. This is an operating conglomerate with a CEO.

Yeah the conversation has digressed beyond where it was intended (in the natural spirit of the msg board  ).  My initial point, that I still maintain is that there isn't need for the delineation btw AIG Inc. & AIGRF in this latest conspiracy.  It's really one consolidated company at the end of the day, and the AIG brand is affected by the business operations of its subs regardless of how much one might hope it isn't.  The whole discussion about the nature of the holding company has spiraled unnecesarily from that initial discussion. 

It started off as theoretical, but the deeper the conversation got about the actual holding structure specific to AIG, the more I realize that I'm going in over my head, because I really don't know the details of how they run their internal processes & procedures from the top down...(hence the more flexible tone in my previous post)....  Based on my understanding of a holding structure in the case of AIG, I would think alot of autonomy is allowed to the fully operating subs... but that in itself I admit is specuation.  I agree AIG inc is not a shell company...but I have doubts as to how fully ecompassing the business operations of the holding parent are.  To that end B&S presented testimony that in his opinion suggested that the holding corp was active in initiating oversight of AIGRF, and were obstructed from doing so...I'm not convinced, but either way it doesn't change my initial point reiterated above...

Onward to March madness.

[Bakes]

You told me that you'd be shocked if that's where the Risk Management team came from and not from within AIGFP itself.  All I was told is that they were sent from NY.  I know the Inc.'s HQ is in NY which is why I said the "parent company" sent them.  I admitted that I wasn't clear on the details as to exactly where, what address they originated from... but it clearly wasn't Danbury, CT and wasn't London.

Just because the oversight was initiated in NY...did it say that?, and the parent company is in NY, doesn't mean the oversight was initiated by the parent- again it seems like you're not understanding how a holding company is set up and how the parent sub relationship functions under a holding structure....or maybe I'm oversimplifying because I admittedly don't fully understand the complexities of AIG's corp structure...not sure if anyone on this msg board does.

From my undertanding a holding company is just a legal formation...in effect it would consist of ownership agreements and legal documents, Directors, Officers and in some cases some management- that's all.  No relativley significant assets (other than the shares of its subs), no personnel/staff making the decisions at the level that you're implying.  The directors & officers of the parent are ultimately the D&O's of the subs and they exercise their influence by running the boards of the subs, not necessarily as representatives of the holding company (parent), but as Board members/reps of the subs....The parent-sub relationship in a holding structure is not typically one of oversight at the level that is being discussed, because the holding company (parent) is set up ONLY to hold shares/voting rights, and consolidate the presentation of financial statements not to do the kind of oversight business as the parent that you imply...Holding companies don't typically have the resources to do (initiate) that kind of thing- the autonomy would realisitcally lie somewhat in one of it's operating businesses (a sub)....All business of the nature that we're discussing, in a holding structure is carried out by the subsidiaries.  In the case of oversight, there's probably (using a generic term) some sort of management company in place, or a corporate/non-revenue generating arm....or some oversight committee maybe appointed by each BOD that would initiate such... not the parent...audit committees are appointed by the BOD, and they deal with appointing auditors etc....Not the holding parent.  If you've worked for company that operates under a holding structure you'd know what I'm talking about.  Of course oversight policy at all levels is likely to be set at the parent level... runs through the entity to the highest rung, because in the end, it needs to be signed off at the highest point, but I'd be surprised if the ins and outs of it through the course of business are initiated at the parent level (if it's a holding company), as opposed to being delegated to the operating units.

Next time you get a chance, go to SEC.gov and go through the 10-k of a Holding company, and you'll see it is merely a consolidation of its subs....by itself, there's no revenue, expenses, assets or liabilities.  If a parent company is exercising the kind of oversight that you're trying to imply it would probably NOT be a holding company by definition..AIG inc. is a holding company that operates business through its many subsidiaries.

If you can consclusively prove otherwise (which that link does not do and I highly doubt anything will), then ok...but in the absence of that, the understanding of a holding structure and what a holding company effectively is, should deter you from making the assumptions that you make.  Given the complexity of AIG, by the sheer size of the company, there's a chance that it isn't as black or white as either of us see it though....which could probably partly account for why they're in this mess to begin with.

Kicker I'm not going to continue to get bogged down in the holding company debate.  I could go pull the charter of AIG, Inc. and see how it's structured and see what are the rights and responsibilities of its Directors.  Whether you think the holding company is just a shuffle of papers sitting somewhere in a file, or whether the holding company consists of only a Board and some secretaries, I don't know.  Quite honestly, I'm not sure it matters.  I was told that the risk management team was dispatched from NY and sent to AIGFP in London where they were rebuffed by Cassano.  

First you suggested that the risk management team was from within AIGFP, I hope that we can at least agree that it was an 'outside' team, which is to say not originating from within AIGFP.  This is important, because it supports my assertion that people weren't just sitting idly by as Financial Products ran amok... somebody dispatched a team of auditors to go look at the books and the Director of Financial Products division denied them access.  Financial Products activities ultimately led the company to ruin.  When I speak to my source I'll probably find out more about where the team was sent from, but I don't have that info right now.  Your interpretation seems to be that the team was sent from another subsidiary (a sister company), I believe it would have had to come from the parent company.  When I say "from", I mean at their direction... even if they just met as a board and decided to issue the directive that AIG Risk Management dispatch a team.  As I said, I'm not concerned with where that team of auditors spent their regular 9-5 hours, just upon whose authority they approached AIGFP.  This again, would help show that AIGFP was a renegade operation that functioned even in defiance of AIG, Inc.


EDIT:

To tie this back to my original point... while AIG, Inc. ultimately would be responsible for the activities of its subsidiaries, and while the name AIG may carry a taint as a result of that, we may not need to 'delineate' and say that "oh is only AIGFP" who did the crime", but we should keep in mind that it's unfair to taint every sub affiliated with the AIG name, for the actions of just ONE sub.  So don't associate the wrongdoing with the name on the front of the Man U. shirts.

[kicker]

Kicker I'm not going to continue to get bogged down in the holding company debate.  I could go pull the charter of AIG, Inc. and see how it's structured and see what are the rights and responsibilities of its Directors.  Whether you think the holding company is just a shuffle of papers sitting somewhere in a file, or whether the holding company consists of only a Board and some secretaries, I don't know.  Quite honestly, I'm not sure it matters.  I was told that the risk management team was dispatched from NY and sent to AIGFP in London where they were rebuffed by Cassano.  

First you suggested that the risk management team was from within AIGFP, I hope that we can at least agree that it was an 'outside' team, which is to say not originating from within AIGFP.  This is important, because it supports my assertion that people weren't just sitting idly by as Financial Products ran amok... somebody dispatched a team of auditors to go look at the books and the Director of Financial Products division denied them access.  Financial Products activities ultimately led the company to ruin.  When I speak to my source I'll probably find out more about where the team was sent from, but I don't have that info right now.  Your interpretation seems to be that the team was sent from another subsidiary (a sister company), I believe it would have had to come from the parent company.  When I say "from", I mean at their direction... even if they just met as a board and decided to issue the directive that AIG Risk Management dispatch a team.  As I said, I'm not concerned with where that team of auditors spent their regular 9-5 hours, just upon whose authority they approached AIGFP.  This again, would help show that AIGFP was a renegade operation that functioned even in defiance of AIG, Inc.

I hear you...fair assessment

[Filho]

To call AIGFP a rogue unit that acted on its own and defied AIG Inc. is a bit of a stretch. If it were, it was because it was allowed to be. This not the first unit of AIG to run into trouble. A few years ago the CEO was forced out and some other executives were convicted of criminal conduct because of an investigation at the reinsurance Unit. What was found was a company with poor internal controls and criminal financial accounting practices. If after that episode, AIGFP was still allowed to run free...it is not just Mr Cassano and company's fault. After all, it's not a unit shrouded in secrecy and hidden behind the legalities and beurocracy of a remote rogue nation. It's hard for me to believe that AIG Inc. was obstructed from completing proper audits of AIGFP unless the auditors themselves committed fraud, or AIG Inc. looked the other way.


Separating AIGFP from other subsidiaries that are not connected to them makes sense. Separating AIGFP from AIG Inc....not so much, imo. I don't think that means consumers should be offended by the AIG logo..it is after all a conglomerate with a number of businesses that have little or nothing to do with AIGFP. But AIG Inc. and AIGFP are not separable when it comes to taking responsibilty for the poor risk controls, mismanagement and accounting 'lenience' that led to the liquidity crisis at the company.

[Bakes]

To call AIGFP a rogue unit that acted on its own and defied AIG Inc. is a bit of a stretch.

it's an entity unto itself... how much control could AIG, Inc. exert over it?  If you're disputing the fact that it acted on it's own and defied the auditors sent to it... then you must not believe Mr. Liddy's account.  If you think he's lying then take that up with him, but this is something that I was personally told of back in November/December.

If it were, it was because it was allowed to be.

Again... what could AIG, Inc. do that it didn't already attempt to do?

This not the first unit of AIG to run into trouble. A few years ago the CEO was forced out and some other executives were convicted of criminal conduct because of an investigation at the reinsurance Unit. What was found was a company with poor internal controls and criminal financial accounting practices. If after that episode, AIGFP was still allowed to run free...it is not just Mr Cassano and company's fault. After all, it's not a unit shrouded in secrecy and hidden behind the legalities and beurocracy of a remote rogue nation. It's hard for me to believe that AIG Inc. was obstructed from completing proper audits of AIGFP unless the auditors themselves committed fraud, or AIG Inc. looked the other way.

As hard as that might be for you to believe... that is what happened, according to credible sources and Liddy himself.

Separating AIGFP from other subsidiaries that are not connected to them makes sense. Separating AIGFP from AIG Inc....not so much, imo. I don't think that means consumers should be offended by the AIG logo..it is after all a conglomerate with a number of businesses that have little or nothing to do with AIGFP. But AIG Inc. and AIGFP are not separable when it comes to taking responsibilty for the poor risk controls, mismanagement and accounting 'lenience' that led to the liquidity crisis at the company.

That is not in contention... in fact I myself stated on several occasions that despite not being culpable for the actions of AIGFP, AIG, Inc. still bore ultimate responsibility for the actions of it's subsidiary.  Your point about consumers not being offended by the AIG logo actually reflects my own point about not associating AIG, Inc. with the actions of the Financial Products division.

[Trini_fan]

You told me that you'd be shocked if that's where the Risk Management team came from and not from within AIGFP itself.  All I was told is that they were sent from NY.  I know the Inc.'s HQ is in NY which is why I said the "parent company" sent them.  I admitted that I wasn't clear on the details as to exactly where, what address they originated from... but it clearly wasn't Danbury, CT and wasn't London.

Just because the oversight was initiated in NY...did it say that?, and the parent company is in NY, doesn't mean the oversight was initiated by the parent- again it seems like you're not understanding how a holding company is set up and how the parent sub relationship functions under a holding structure....or maybe I'm oversimplifying because I admittedly don't fully understand the complexities of AIG's corp structure...not sure if anyone on this msg board does.

From my undertanding a holding company is just a legal formation...in effect it would consist of ownership agreements and legal documents, Directors, Officers and in some cases some management- that's all.  No relativley significant assets (other than the shares of its subs), no personnel/staff making the decisions at the level that you're implying.  The directors & officers of the parent are ultimately the D&O's of the subs and they exercise their influence by running the boards of the subs, not necessarily as representatives of the holding company (parent), but as Board members/reps of the subs....The parent-sub relationship in a holding structure is not typically one of oversight at the level that is being discussed, because the holding company (parent) is set up ONLY to hold shares/voting rights, and consolidate the presentation of financial statements not to do the kind of oversight business as the parent that you imply...Holding companies don't typically have the resources to do (initiate) that kind of thing- the autonomy would realisitcally lie somewhat in one of it's operating businesses (a sub)....All business of the nature that we're discussing, in a holding structure is carried out by the subsidiaries.  In the case of oversight, there's probably (using a generic term) some sort of management company in place, or a corporate/non-revenue generating arm....or some oversight committee maybe appointed by each BOD that would initiate such... not the parent...audit committees are appointed by the BOD, and they deal with appointing auditors etc....Not the holding parent.  If you've worked for company that operates under a holding structure you'd know what I'm talking about.  Of course oversight policy at all levels is likely to be set at the parent level... runs through the entity to the highest rung, because in the end, it needs to be signed off at the highest point, but I'd be surprised if the ins and outs of it through the course of business are initiated at the parent level (if it's a holding company), as opposed to being delegated to the operating units.

Next time you get a chance, go to SEC.gov and go through the 10-k of a Holding company, and you'll see it is merely a consolidation of its subs....by itself, there's no revenue, expenses, assets or liabilities.  If a parent company is exercising the kind of oversight that you're trying to imply it would probably NOT be a holding company by definition..AIG inc. is a holding company that operates business through its many subsidiaries.

If you can consclusively prove otherwise (which that link does not do and I highly doubt anything will), then ok...but in the absence of that, the understanding of a holding structure and what a holding company effectively is, should deter you from making the assumptions that you make.  Given the complexity of AIG, by the sheer size of the company, there's a chance that it isn't as black or white as either of us see it though....which could probably partly account for why they're in this mess to begin with.

Your definition of a holding company is not how AIG is structured. AIG has full goverance over all units. Most decisions are made by the holding company because the holding unit is who files to the SEC.

[Filho]

Absolutely untrue.

Lehman, Bear Stearns et al. were not "faulty" 3-4 years ago... in fact they were quite profitable.  I also don't think you understand the situation either.  Think of the insurance as automobile insurance... AIG is in the business of selling insurance and they look at your driving record to determine the level of risk.  The level of risk on these loans were apparently acceptable.  Instead of making policies on driving records, AIG made loans on the financial worthiness of the firms... they were extremely profitable at the peak of the housing bubble.  

Not entirely correct. AIG wrote CDS on certain tranches of CDOs (many of which were mortgage-backed) issued by Lehman, Bear, Goldman etc. The brokerage firms sell the Tranches to investors, but often invest in some debt and equity tranches themselves. AIG is paid a premium on the notes that they guarantee. If the Notes default, AIG then pays them out in full and the investors are repatriated. Only if Bear, or Lehman owned any of these guaranteed Notes, would they face counterparty risk to AIG. AIG is not covering Bear, or Lehman corporate credit risk..they are basing their insurance premium primarily on the risk profile of the CDO tranches they are guaranteeing, which are usually house in off-balance sheet SPVs and which have reveneue driven by assets that are not necessarily connected to the CDO issuer. AIG faces does face some counterparty risk to Bear and co..That is, they ultimately rely on them remaining in business so that their CDOs can continue to pay a premium. Thy also look at the track record of the collateral manager, but ultimately AIG makes its business decision on the credit worthiness of the actual CDOs.


There was no indication that the loans made by the companies would fail (all drivers having an accident at the same time) and thus come calling to cash in their policies.  Because everybody came calling for cash at the same time AIG found itself unable to pay.  The bailout is money for AIG to pay those banks who provided the loans... which is what we're seeing now.  Without the bailout the banks fail and the economy contracts even worse than we're currently seeing.

It is incorrect to say there was no indication. The risk was just considered acceptable and for that they are paid a premium. It's very much driven by rating agency CDO models, but in the end AIG has its own risk due diligence to conduct. Also, AIG is ultimately a diversified insurance company, and should be diversifying nonsystematic risk. Instead, it allowed an arm to do the opposite to the point that if it did fail, it would hurt the larger insurance units. The company is not blameless..it overeached and put itself at risk...

It is simply erroneous to fault AIG for insuring these loans in hindsight... which as we know is always 20-20.  With what we know now about the subprime loans, we need to fault the lenders... that's like drivers driving around with faulty brakes.  You could fault the insurance company for not checking the brakes of every driver it insures, but how practical is that?

Some truth to that. Noone can predict the future, but the analogy is not great. In terms of financial products, AIG is ultimately responsible for checking the brakes often. Also, for many of the CDOs that AIG wrapped, it became the holder of record and sees all monthly statements and can vote on issues re. the CDO . And in the end, it is a diversified insurance company. Prudence is key and its analysts were well aware of the risks inherent in sub-prime mortgages, and the other assets that backed the CDOs it wrapped. They made the wrong bet, but that's not to say everyone did..so it was ultimately avoidable, especially given their mandate to prudently diversify risk.

If anything we should fault AIG (its investment arm in London, really) for writing too many CDS obligations adn for not properly checking the bond ratings of the loans it was insuring... but again, the parent company (AIG) had no reason to question the activities in London up to that point.  Not only were they profitable... but they never raised any red flags before.

AIGPF knew the bond ratings it insured. In fact, by wrapping the bonds, AIG boosted their ratings. And like I said, they get all the information on the deal and are supposed to monitor them at least once a month when the Trustees publish statements. The parent company had every reason to question the activities in London, but chose not. In the end, the company had poor internal controls and manipulated financial statements. The parent company is therefore complicit in the slackness at AIGFP. The fact that no red flags were raised does not absolve the parent company...the CEO has to sign of on all financial statements, and every year there are internal and external audits...The company now says that AIGFP waved away auditors (not a red flag?)...and they let them. The parent company had the power to force Cassano to do as it pleased an didn't...probably because he was making too much money for them. Ask yourself..if AIGFP was losing millions every year, would the parent just allow Cassano to do as he pleased. You bet they'd put their foot down and get to the bottom of it. Imo, the parent must hold its hands up as well..and not just in a symbolic way

[Filho]

To call AIGFP a rogue unit that acted on its own and defied AIG Inc. is a bit of a stretch.

it's an entity unto itself... how much control could AIG, Inc. exert over it?  If you're disputing the fact that it acted on it's own and defied the auditors sent to it... then you must not believe Mr. Liddy's account.  If you think he's lying then take that up with him, but this is something that I was personally told of back in November/December.

I completely believe him. I think it's a joke to think nothing further could be done, that's all.

If it were, it was because it was allowed to be.

Again... what could AIG, Inc. do that it didn't already attempt to do?

Forced Cassano to open his books, or dock his pay, demote him, or eventually fire him. He went 'unchecked' for years. I am not sure what you think AIGFP is..a fortress? Cassano is not superman..when an audit process is foiled, the Board, the CEO etc can't just fold up shop and go away. They chose to allow him act like this

This not the first unit of AIG to run into trouble. A few years ago the CEO was forced out and some other executives were convicted of criminal conduct because of an investigation at the reinsurance Unit. What was found was a company with poor internal controls and criminal financial accounting practices. If after that episode, AIGFP was still allowed to run free...it is not just Mr Cassano and company's fault. After all, it's not a unit shrouded in secrecy and hidden behind the legalities and beurocracy of a remote rogue nation. It's hard for me to believe that AIG Inc. was obstructed from completing proper audits of AIGFP unless the auditors themselves committed fraud, or AIG Inc. looked the other way.

As hard as that might be for you to believe... that is what happened, according to credible sources and Liddy himself.

What I am saying is Cassano's obstruction is by no means a true obstruction for any company willing to have the adequate internal controls. As I said, unless the auditors sign off on the audit, then the parent company should see a red flag and are mandated to force the audit through. I have no doubt that Cassano blocked auditors. It's laughable to act like that should really stop an audit. I can tell you that auditors get roadblocked all the time....some Cmpany's just give more of a dam. Cassano was a golden boy..trust me..if he wasn't making a ton of money, they'd have found a way to get that audit done...

Separating AIGFP from other subsidiaries that are not connected to them makes sense. Separating AIGFP from AIG Inc....not so much, imo. I don't think that means consumers should be offended by the AIG logo..it is after all a conglomerate with a number of businesses that have little or nothing to do with AIGFP. But AIG Inc. and AIGFP are not separable when it comes to taking responsibilty for the poor risk controls, mismanagement and accounting 'lenience' that led to the liquidity crisis at the company.

That is not in contention... in fact I myself stated on several occasions that despite not being culpable for the actions of AIGFP, AIG, Inc. still bore ultimate responsibility for the actions of it's subsidiary.  Your point about consumers not being offended by the AIG logo actually reflects my own point about not associating AIG, Inc. with the actions of the Financial Products division.

Disagree...AIG bears some of the blame if it exercises any managerial control over AIGFP and was aware that cassano was blocking audits...and they were aware. I don't think consumers shold be offended because the logo on the shirt represents more than just AIGFP...but in terms of the discussion on whose fault it was for the company's demise..isolating it to just AIGFP seems wrong to me. It's more of a PR/damage control exercise when the parent tries to absolve itself of blame. Isolate the sickness.hasten the cure. But plenty othet hands are dirty for looking the other way and pretending they could do no more

[kicker]

Your definition of a holding company is not how AIG is structured. AIG has full goverance over all units. Most decisions are made by the holding company because the holding unit is who files to the SEC.

N-E-Way...Most decisions?  What about those that don't fall into the "most"....The fact that the holding parent files with the SEC is not necessarily related to what you're saying about the structure.  Are there are shell companies who file with the SEC via consolidation who have no operations, little governance?( not saying AIG Inc. is one of those)...your point doesn't really seem to hold fully...but I won't argue AIG's role of governance-you're correct...but is that governance at the level being discussed in the context of this thread?. honest question...anyways you're most likely correct about me not appreciating/understanding the details of AIG's holding structure...I've ceded this already in previous posts....

Please please don't re-hash LOL ah tired- me & Bakes done move on to more interesting and relevant topics such as:

MARYLAND F*CKING TERRAPINS BABY!!!!!!!!!!!!!!!!!!!!

Bring on Memphis....Sweet 16, We comin' 

cheers 

[Feliziano]

Bakes yuh is ah Liverpool fan..yuh should be more concerned bout Carlsberg or somebody who could give we ah bigger shirt deal so we could buy ah good right-winger

[Bakes]

Bakes yuh is ah Liverpool fan..yuh should be more concerned bout Carlsberg or somebody who could give we ah bigger shirt deal so we could buy ah good right-winger

Lol... right now I liking de sound of "Treasury"... I hear dem handing out money left and right deez days 

[Filho]

Bakes yuh is ah Liverpool fan..yuh should be more concerned bout Carlsberg or somebody who could give we ah bigger shirt deal so we could buy ah good right-winger

Lol... right now I liking de sound of "Treasury"... I hear dem handing out money left and right deez days 

Dat money will more get you someone on de 'left-wing' doh 

[Feliziano]

not to bring this thread back up but ah had a laugh bout it Friday night

went out to dinner Friday night with meh father-in-law and a bunch of his friends- old people obviously 
so meh lil son was wearing he Man U kit (Mommy's team btw  )
so somebody say he have a nice outfit etc, but then they notice the AIG in de front
so they ask if that stands for the AIG in de news, so ah said yes
so they want to know what that doing there
so ah said thats what they do in soccer, advertise on the jersey
so she proceeded to say yeah they need the money etc
so ah say no is not like that, that is AIG paying the soccer team use that space on the jersey
so then ah start to lie when ah notice she gettign worked up and other people was listening
ah say yeah them sign a big contract with Man U cause them is the biggest team in all of sport so that means global marketing, then ah hit them that AIG pay like $50 million per year for 5 seasons cause how else they could buy the best players
well by now everybody livid and commenting amongst themselves
so then ah point to meh Torres jersey and say Carlsberg only pay Liverpool $5 million a year and that AIG got robbed
somebody then say Obama go get the money back, ah laugh and say deal expire this year but ah could hook allyuh up with some jerseys and allyuh could help advertise AIG to get some new business though   
they didn't appreciate my help though   

[boss]

Man Utd in new shirt sponsor deal

Aon will replace another insurer, AIG, on Manchester United's shirts

Manchester United has signed a four-year shirt sponsorship deal with the insurance giant Aon Corporation.

Aon will replace troubled US insurer AIG, which is restructuring itself having received a $150bn (£109bn) bail-out from the US government.

The new sponsor will appear on Manchester United's shirts from the start of the 2010/11 season.

Aon is based in Chicago and specialises in reinsurance, which is the selling of insurance to other insurers.

Neither Manchester United nor Aon has announced the terms of the deal or how much it is worth.

AIG paid £14m a year for its four-year deal, which ends in May 2010.

There have been reports that Aon's deal could be worth as much as £80m over four years.

Aon said it hoped that its relationship with Manchester United would help to improve its brand recognition.

It pointed out that after its first year sponsoring the team, AIG had become the 47th most recognised global brand and had jumped from number 84 to number 30 on Barron's list of most respected companies.