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March 19th, 2009
11:51 AM ET

The real AIG scandal

Eliot Spitzer
For Slate.com

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/US/03/14/aig.bonuses/art.aigbuilding.gi.jpg]

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

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soundoff (29 Responses)
  1. Joe F

    Respondind to Sam Rolon; President Obama is paying back favors to companies that gave financial contributions to his election. A well staged political showdown, because there is no way the President of United States will sign a bill not knowing what's in it. The whole Obama administration knew about it.

    March 19, 2009 at 9:20 pm |
  2. TinaTinaTina

    Insurance companies know they are not going to pay claims. I have paid an insurance company (house ins) for over 20 years and everytime I submit a claim a claim adjuster comes out and says the claim after his investigation is not worthy of being paid.
    this is how ins companies make money....another example is New Orleans...the ins co said "its wind damage not water damage" they are still fighting in court over that one. please give me a break. In order to make a profit you do not pay on every claim.

    March 19, 2009 at 8:56 pm |
  3. Annie Kate

    I'm somewhat amused that none of the commenters noticed who wrote this post – former governor Eliot Spitzer of New York. His questions that he proposes though are good ones and I hope someone asks them. The one part I find the most interesting of his questions is:

    "After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued."

    How can an insurance company not pay a legitimate claim on insurance it has issued and still be legal?

    March 19, 2009 at 8:44 pm |
  4. Sharon

    Let's see; Chris Dodd, boldfaced liar. Tim Geithner can not handle his own taxes. AIG must give humongous bonuses to retain the brightest and best? Are you kidding. If running a company into the ground and all of us with them is the best what the hell is the worst!

    As a nurse, I would be canned and prosecuted if I performed my duties and responsibilities using the Wall Street mentality. Michigan's unemployment rate is sitting near 10%. Anyone in this state would love a position. So take back the bonuses and hire integrity. I am sick of allowing arrogant, hubris, fat old asses to remain bullet proof, while the rest of us are expected to follow the rules.

    March 19, 2009 at 8:24 pm |
  5. Linda

    lets get to the heart of the mess, congress taking care of congress,
    and not the people who elected them. they still get there raises, have health insurance, that we the people pay for. None of our congressmen, have done without anything. Now they are caught with there hand in the cookie jar, so if they scream loud enough the people wont look any further to see how much money they took from aig and other big banks, that they gave billions to.

    March 19, 2009 at 8:04 pm |
  6. Maureen Wiggins

    It is a good thing that AIG (and other like companies) wages/ bonus's are being examined...long overdue..and hidden by the top 5% earners of the USA....this is the beginning...too bad about the timing for Obama.... but he will handle it...and exposure is what we require!

    Maureen Wiggins
    Marina del Rey, CA

    March 19, 2009 at 7:57 pm |
  7. Denise

    SUBJECT: AIG- Arrogant Insurance Giant

    AIG sure picked the right letters for its company name.

    Didn't employment in the financial sector get hit extremely hard? How many job opportunities are out there in that industry? Not many. Even though, AIG's "reason" for the bonuses was to retain employees.

    Outraged Americans will glad when the bill is passed to put high taxes on those bonuses.

    March 19, 2009 at 7:40 pm |
  8. Frank X. Marcial

    Dear Mr. Cooper, Imagine investing $101,000.00 in then candidate Barrack Obama and getting a small return of only $163,000.000.00. Hopefully the contribution is not true.

    I would say those FAT Cats at AIG really understand Investment Return on funds., if, this contribution to our now President of the USA is a fact.

    My family has lost $95,000.00 in the 401 plan, wish could find a legtimate fund which returned like the OBAMA Fund.

    March 19, 2009 at 7:40 pm |
  9. JC- Los Angeles

    It's the height of hypocrisy for Eliot Spitzer to think that anyone cares what he has to say.

    You can't make this stuff up; for someone who wires money across state lines for illegal puposes to be commenting on crooks is beyond the pale.

    Both Spitzer and AIG should meet in the yard to discuss their heartfelt feelings.

    We have fallen so far it's unfathomable.

    March 19, 2009 at 7:19 pm |
  10. Rose Robinson

    President Obama ask'ed for suggestions and ideas, stating he would be open to lisen. I am a supporter of the president, he should send out a taxpayers bonus, in the sum of $10.000 dollars and let that jump start the economy. people would know exactly what to do with it and he would see results immediately. Help the people who elected you. We deserve more.

    March 19, 2009 at 7:16 pm |
  11. Jenny

    Enough is enough! I don't trust Wall Street or the Government anymore...
    The American people are on their own for a very long time, when we will realize that no one is on our side but ourselves! WAKE UP everyone or they will consuming us ALIVE...

    March 19, 2009 at 6:43 pm |
  12. Lin

    I think every employee of a bailed out company should have their taxes audited, along with every Congressman and woman. I also say yes, make them give back these bonuses and ask the tough questions too. Additionally, every bank that was bailed out should also be forced to use a percentage of their dollars for loans so we can get this economy back on track.

    March 19, 2009 at 6:23 pm |
  13. biketwit

    I'm so dismayed by the bonuses...I don't think most everyday business people understand the whole AIG thing. We sure don't get paid bonuses on the way out of a company.

    March 19, 2009 at 6:14 pm |
  14. Lindley

    I am really wondering whatever happened to taking your losses .
    In the real world,( which has disappeared it seems for the most part)
    people entered the business world prepared for some loss at the beginning while they were getting their business legs. Consective losses meant that there were areas where they could still improve.
    If one continued to have losses, they perhaps eventually failed, closed shop, and recouped what they could, and left the business arena for some other pursuit.

    Now we have the Government stepping in and bailing people out who should never have been business people. They made errors upon errors with money, or on leads from others who had less sense than a ball of mud. The companies are rewarding their executives with thousands and thousands of dollars that belong to the American people not in their bank accounts.

    I read with horror in the Dalla Morning News of March 19, 2009 that now Fannie Mae, AND Freddie Mac are giving out bonuses to their key
    executives retention bonuses! Retention for what? To the tune of
    $611,000.00 each!

    Don't give these people a bonus... FIRE THEM... hire people who will do the job at hand, and pay them accordingly... no results? then no pay.

    March 19, 2009 at 5:17 pm |
  15. JOSEPH

    I want to comment on the A.I.G situation, My comment is why after the big company’s make bad on their propsoals, why does the federal government feel they need to keep investing in them. The president stated that “it was the right thing to do to step in”. On the other hand he is saying we need to build from the bottom up, but with another breath says, that we cant let these banks fall. Is it not true that if you take some of these power houses out the way or in this situation let them collapse from there own wrong doing that it will pave the way for smaller businesses to get a peace of the economy by spreading these big businesses business to smaller businesses with the same discipline and at the same time mitigating the amount of money the government spends on bail outs but invest in inpowering these smaller businesses with the responsiblity of managing their communities lending. In return taking the net away, this allows the GIANTS to look down over their balcony a see where they will be if they miss represent themselves.

    March 19, 2009 at 5:11 pm |
  16. Susan Mathis

    Why won't somebody talk about how this company has commited treason against the country and it's people. This was really an act of treason and the feds need to look into it. They undermined the countries financial stability and everything else. PUT THEM IN JAIL.

    March 19, 2009 at 5:08 pm |
  17. r.marie

    I think the president is doing the best he can with this mess he stepped into. People are quibbling over nonsense while he appears to be unraveling this mess for us. However, if his opponents think there is a kink in his armour, they are trying to infiltrate. When all is said and done Obama is a good man, a good president and this will be fixed. He won fair and square so stop the maddness. God bless America.

    March 19, 2009 at 5:01 pm |
  18. Jo Anne

    I think Congress is doing more than putting on a dog and pony show and you are absolutely right that they have little to no regard for the American public. I think that they are using this as a smoke screen because not only are AIG and others getting bonuses with tax payer dollars, but Congress is also getting their yearly cost of living wage even while most Americans are facing job loss and cutbacks on their wages. Their excuse is that it is already built into the budget, well there is absolutely no reason with this last voting to approve the budget they could have also voted to take out their pay raise provision. It is a shame that most of them make well above the average American citizen but yet get pay raises each year even though they fail to perform. It isn't just one party or another, but both parties. I know of one political figure that is so against the pay raises that he actually has been giving his away to charities, there may be more but for now I just want to say hats off to the Utah Democrat – Matheson and hats off to others I may not know about who fight against the annual raise. I don't think the media should be letting this news slide on by without it becoming evident that our representatives do not deserve a raise as long as they can't balance the budget, stop their excessive spending and get this country back on track. Blame Bush all you want but the Democrats have been in control of Congress for over 2 years, what are they going to do next blame Obama. Sure the buck stops at the President but it starts with Congress and they deserve to be blamed for their lack of action.

    March 19, 2009 at 4:42 pm |
  19. xtina, chicago IL

    Everyone who comes along on this post should read " Lee's " comments. Then think to yourself, where is the "change" Obama brings?

    March 19, 2009 at 4:22 pm |
  20. anthony

    I think everyone who received money from Aig needs to return it .And everyone who gets bailout money and pays out bonus with it need to be treated like madoff and his stealling money ,it is the same thing and everyone of the companies like Aig and others that steal from the American taxpayers. So what Im saying is put all Aig top people who are involved in jail and other companies who have given bonuses then they need to be in jail. WE SHOULD NOT OF GIVEN TO THE BANKS AFTER THE FIRST ROUND OF LIES. We the tax payers should get all this money and let the banks who steal go under and go to JAIL. I voted for change and its seems more the same, I say lets clean out the whole house and senate of the guys who wont fix this problem. The guys in the senate and house stop the bull and finger pointing and be who the America citizens want and remember we will vote you out of office for lieing to us. So stand up and be Americans and do the correct thing and not a bunch off liers and theifs or there is someone new who will stand up against the bull< someone like me if id get a chance.

    March 19, 2009 at 4:17 pm |
  21. Janene

    Congress is like a runaway train. Giving money to AIG is like giving money to a Meth addict and expecting them to buy their groceries with it. The America people NEVER wanted this bailout and that is what Congress and the President fail to understand. And now in an attempt to stem the populist anger at the AIG bonuses, Congress has brilliantly passed a bill to tax them at 90%. As CNN reported last night, congress knew these bonuses were going to happen when the bill was passed. It’s like the fireman who starts the fire just so he can put it out, don’t we prosecute those guys and put them in jail??? And now we have a brand new tax on bonuses, brilliant!

    March 19, 2009 at 4:08 pm |
  22. Michael "C" Lorton, VA

    Greed has many "hidden faces,"--an it is a state in which it does not matter how much money you pour into the "bag of greed,"-–it is never enough-for those doing the pouring- and by those who are receiving-all concerned parties knew-–it is only those who are going to have to pay who are always kept in the dark--the most famous two words in the English language is "plausable denialability,"--we have no money-–but we surely have a lot of plausable denialbility.

    March 19, 2009 at 3:59 pm |
  23. Lee

    The Congress is putting on a dog and pony show to try and influence the American public for whom they have no regard. The corruption and greed runs rampant in our so called "leaders" and they are constantly given "passes" after their lame excuses. Private citizens who have committed these same "crimes" are prosecuted and sent to JAIL.

    You should POST all the names and people on CNN Website who have LIED, NOT PAID TAXES AND PERFORMED ILLEGAL ACTS on single pages so ALL of America and constituents can view them on a WALL OF SHAME!

    My prayers for Laura Ling's safe return!

    March 19, 2009 at 3:56 pm |
  24. Mike, Zephyrhills, FL

    Vital One versus the Vital Many!!

    Just a bunch of thieves and fakes we have running everything in DC and Wall Street!!! This is nothing more than the Roman Empire run amuck and its going to end in disaster for all of us.

    Americans just sit back and dont pay attention to what is really going on and let it all crumble around them, and when it does , they will all say , Who let this happen !! You did stupid!!

    March 19, 2009 at 3:50 pm |
  25. carl Fleshman

    From a Marketing stand point, if AIG doesn't give the money back, what happens when the economy gets better? No one is going to buy their insurance.

    March 19, 2009 at 3:21 pm |
  26. kate

    What happened to a "free market" - everyone is so worried AIG will go belly up - I almost bought the explanation of the banks bundling mortgages and then buying mortgage insurace and too many of those mortgages went to foreclosure and AIG hedged too much and didn't have the money to pay... but then thought, if that explaination is true then why isn't AIG withholding those "mortgage insurance" payouts if they can prove that the original bank didn't qualify the loan properly?

    March 19, 2009 at 3:09 pm |
  27. Larry

    Fire Chris Dodd and every Congressman who autographed that 'get a big bonus from A.I.G.' clause.

    The government isn’t gonna try and get any money given to Goldman-Sachs, why, because its a big recipient of investment from Warren Buffet.

    Treasury Sec. Geithner is lying about when he knew about A.I.G. same with Obama, Dodd, Rangel, Franks, and the rest of these Democrat conspirators who can no longer get away with trying to gloss everything over with their own denials of ‘Not Me’ ‘Just heard about it the other day’ ‘Sorry, I don’t watch CNN’ That escape clause in the contract signed by the Senate & House didn’t get there by itself.

    Chris Dodd, tell us who urged you to put that clause in the bill, we taxpayers want to know.

    March 19, 2009 at 3:08 pm |
  28. kate

    I am wondering why they are paying "bonuses" and apparently very significant bonues to "retain" the best people?? Last time I checked with my employer, if you want to be "retained" you come to work and do your job. If these people who are getting bonues think they can get a better job, do us all a favor and show them the door!!

    March 19, 2009 at 3:03 pm |
  29. Sam Rolon

    I think Prs. Obama should give back the money he and others from Gov. offices recevied from AIG for their campains. Why are we not talkin about that?

    March 19, 2009 at 3:01 pm |