AIG has a current board of 11 directors. Of those, seven have been on the board since at least 2006 and five have been there since 2005 or before. Two directors have been around since the 1990s. One of them is Martin Feldstein, who has been in that position since 1987. He is also a member of President Obama’s Economic Recovery Advisory Board. If anyone can explain that unique convergence of events, maybe they can tell us when the Dow will be back up to 14000.
Question to Treasury Secretary Timothy F. Geithner: Why are these directors, who were presiding (or was it slumbering?) over the company when the seeds of its record disaster and taxpayer calamity were being sewn, still allowed anywhere within a five block radius of AIG’s boardroom?
If this is the cost of saving a company that they claim is too big to fail, maybe the alternative should be explored.
| Loss for Q4 2008 |
$61.66 billion |
| Loss for FY 2008 |
$99.3 billion or $37.84 a share (for shares that are trading at
$0.48) |
| Cost of three previous federal bailouts |
$150 billion |
| Cost of fourth bailout today |
$ 30 billion |
| Loans and credits from the Federal Reserve System |
$34.5 billion |
| Total loans, investments and Fed commitments |
$214.5 billion |
It is said this is being done because AIG is too big to fail. It was widely held that the Titanic was too big to sink. At least it had the courtesy to hit the iceberg just once, and not repeatedly as this monstrosity of a financial institution is doing.
Edward M. Liddy, AIG’s CEO, could not assure CNBC today that this would be the last of the bailouts, nor could he indicate what AIG will look like when this is all over.
A couple of hundred billion or so is a lot to spend on vagueness, uncertainty and a vision that could just as well be expressed by any number of Wall Street-area taxi drivers.
If this is the cost of saving a company that they claim is too big to fail, maybe the alternative should be explored.
The law has finally caught up with the stumbling insurance giant’s out-of-control compensation and highflying junkets.
It took the sight of flashing red and blue lights in their rearview mirror before the visionless directors of AIG finally got the message about their failures and shortcomings. Last week, we commented on the excesses in executive compensation and numerous public relations disasters that have occurred on their watch. That was, of course, in addition to the complete meltdown of the company that resulted in the U.S. government’s huge bailout. We said at that time:
AIG’s directors should either get a grip on the company and show they comprehend the new public dimension to their duties, or they should find another line of work.
Yesterday, New York state’s top cop and Attorney General, Andrew Cuomo, sent a blistering letter to each member of AIG’s board demanding that they shape up and behave like the trustees of billions of dollars in public funds which they have become. As Mr. Cuomo wrote:
In the last several months, as AIG was teetering toward bankruptcy, and operating with unreasonably small capital, AIG nevertheless made numerous extraordinary expenditures in the form of executive compensation payments, junkets, and perks for its executives.
The letter went on to demand:
…the Board should immediately cease and desist these improper and extravagant expenditures which exploit the taxpayers of this Nation.
Today, in the wake of yet another revelation -this time, AIG executives taking a private jet to enjoy an $86,000 weekend of pheasant shooting at an English estate- the company announced a new policy to retrain pay, account for previous compensation deals and end highflying parties.
Is it possible the sirens of public outrage have finally awakened the slumbering insurance giant’s board? Stay tuned.
The board’s actions and events in the company it oversees have already made its members look like fools. They should not be permitted to add the trappings of clowns to the boardroom as well.
It was a board that presided over the largest insurance company in the world. Yet it was apparently oblivious to the mounting derivates risks being taken on by AIG’s Financial Products unit. When the Office of Thrift Supervision sent a letter to the company in March, advising of material weaknesses in oversight of the unit and in the valuation and accounting of its products, whatever steps were decided upon did nothing to remedy the problem. Even the company’s own auditors warned the board about accounting problems in the unit. These two revelations should have set off alarm bells in the boardroom. There is no evidence that anyone even woke up long enough to call 911. The board was apparently stunned to discover the dire state of the company the day federal regulators and officials walked in to say liquidation or nationalization were the only choices remaining, and the first option was not really on. It is the history of countless corporate catastrophes to find boards dazed and suprised about the arrival of disaster in the boadroom when everyone else could hear its heavy footsteps coming closer and closer for some time.
In 2007, the board’s compensation committee agreed to ignore AIGFP’s losses so that executive bonuses would not be adversely affected. How thoughtful a board can be when times are tough for its friends at the top. But as losses soared into the billions and obligations because of risk failures spun out of control, the company foundered and the U.S. government had to prop it up with an $85 billion loan.
Undeterred by the outrage the unprecedented bailout prompted among taxpayers and shareholders, the company’s tone-deaf public relations talents masterminded another blunder. AIG decided to spend $440,000 on a weekend retreat at a luxury spa in California for employees and independent agents. It was explained that the event was planned for some time and that the agents were looking forward to it. There would be no reason why the near-collapse of the company and the unprecedented rescue by the federal government should cause any disruption to the social calendar.
Just today, it was announced that the government had to put up a further $38 billion to keep the company going. Share value is all but shattered and with its close today at $3.19, the stock remains a faint shadow of its 52-week high of $70.13. It is difficult to know why directors with a record like this are still on the job. The question also needs to be asked, especially in light of this second multi-billon dollar bailout and recent spa-junket, how many more disasters are going to occur on their apparently shut-eyed watch?
The board’s actions and events in the company it oversees have already made its members look like fools. They should not be permitted to add the trappings of clowns to the boardroom as well.
AIG’s directors should either get a grip on the company and show they comprehend the new public dimension to their duties, or they should find another line of work.
It would be difficult to see how the company would fare any worse for their absence.
It is bad enough that an insurance company, which should know a thing or two about risk, was so badly run that it needed to have the U.S. government nationalize it to the tune of an $85 billion purchase. But when the White House admits that taxpayers may not even see their money returned, you have to wonder if everyone has become a drunken spendthrift sailor. In answer to the concern that taxpayers may never see the money again, White House Press Secretary Dana Perino responded yesterday: “That’s true.”
Most people are smart enough to get a warranty when they buy a new washing machine. When it’s other people’s money that the Fed can just “print,” as many of its supporters remind those of us concerned about the now $900 billion that has been paid out or committed as a result of the subprime credit disaster, the standard of care appears to be less rigorously observed. And Republican administrations have always claimed to own the playbook on responsible fiscal management.
I suppose they may have caught the same disease as AIG, which, even though it was one of the world’s leading assessors and insurers of risk, still allowed risk to run out of control and drive the company into the ditch. It will be interesting to see whether this latest White House admission that the $85 billion may have just been thrown away will make its way onto the campaign trail and into Congressional hearings.
Only the hapless and accident-prone administration of George W. Bush could make the Chinese and the Russians looks like prudent stewards of the public purse.
Without a shot being fired or a ballot being cast, the United States government has been overtaken by an act of socialism on a scale that is as incomprehensible as it is shocking. Now, in addition to being the world’s largest mortgage backer as a result of its takeover of Fannie Mae and Freddie Mac, the U. S. government is the owner of the world’s largest insurance company following yesterday’s seizure of AIG Insurance. The implications of the $85 billion dollar bailout, which brings the tab (so far) for U.S. government rescues and Fed loan facilties related to the current crisis to be in excess of $900 billion, have not even begun to be considered. This much is clear: Financed by the Federal Reserve, whose head, Ben S. Bernanke, mused last year that the subprime credit crisis would not spread to the larger economy; led by Treasury Secretary Henry M. Paulson, Jr., who proclaimed months ago that “We are closer to the end of this problem than we are to the beginning;” and approved by George W. Bush, the most disconnected and unpopular President in modern U.S. history, the judgment of these players inspires little confidence.
American capitalism has abrupty changed course and headed into waters that may prove far more harrowing than the collapse of even a giant insurance company. Resourceful men and women can always find ways to manage disaster wrought by inattentive executives and directors such as those who drove AIG to the point of disaster. They can rarely survive or prevail when fundamental and guiding principles themselves become the object of disregard and abuse.
*Birthplace of Vladimir llyich Ulyanov (Lenin)
