Where​ Did AIG’s​ $123 Billi​on Taxpa​yer'​s Bailo​ut Go?

[Mrs. Sharon B. Hodge]

Where Did AGI's $123 Billion Taxpayer's Bailout Go?

Soon Americans will be eating their neighbors soon, my Brazilian shaman friend warned me 2 years ago – I guess WE allowed this to happen


Donn Vickrey, a forensic analyst, is skeptical of AIG’s past reports “You don’t just suddenly lose $120 billion overnight,” he said


The massive AIG bailout September 17, 2008

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Where Did AIG’s Cash Go?
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New York Times
October 30, 2008

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

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October.
Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz

Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed.
That loan was later supplemented by a $38 billion lending facility

But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion.
It also said that it was making its accounting more precise

Mr.
Vickrey and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout

Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at the company over how to value some of its derivatives contracts.
An accountant brought in by the company because of an earlier scandal was pushed to the sidelines on this issue, and the company’s outside auditor, PricewaterhouseCoopers, warned of a material weakness months before the government bailout

The internal auditor resigned and is now in seclusion, according to a former colleague. His account, from a prepared text, was read by Representative Henry A.
Waxman, Democrat of California and chairman of the House Committee on Oversight and Government Reform, in a hearing this month

These accounting questions are of interest not only because taxpayers are footing the bill at A.I.G.
but also because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an insurer — and its trading partners — whose cash needs could easily exceed the existing government backstop if the housing sector continues to deteriorate

Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G.
, has already said that although he does not want to seek more money from the Fed, he may have to do so

Continuing Risk

Fear that the losses are bigger and that more surprises are in store is one of the factors beneath the turmoil in the credit markets, market participants say

“When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets,” said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. “It’s really bad for the markets.
Things don’t heal until you take care of that”

A.I.G. has declined to provide a detailed account of how it has used the Fed’s money. The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management.
The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down

A.I.G. has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by A.I.G.
’s many derivatives contracts

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide

Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls.
“We did that with ACA,” she said, referring to ACA Capital Holdings, a bond insurance company that filed for bankruptcy in 2007

Of the two big Fed loans, the smaller one, the $38 billion supplementary lending facility, was extended solely to prevent further losses in the securities-lending business.
So far, $18 billion has been drawn down for that purpose .