Friday, July 31, 2009

AIG Is Still Working It's Ponzi Scheme

The New York Times published an article yesterday that exposes a vast web of self-dealing and questionable business practices which continue to fester at AIG's insurance subsidiaries.

"[State regulatory filings] show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good."

The article goes on to quote a former chief insurance examiner for Louisiana who states: "If A.I.G.’s incoming premiums shrink, he warned, 'the whole thing’s going to collapse in on itself.'”

That, my friends, is definitionally a Ponzi scheme. It's no different than what Madoff was doing.

Nothing has been written truthfully about why the Govt did not put AIG into bankruptcy. But let's examine that. We know that $182 billion (that we know about) has been funnelled thru AIG into several banks, most notably Goldman Sachs. But we don't know how much each bank received and we don't know how that money was used. That's one of the primary reasons the Fed does not want to be subjected to the scrutiny of a public audit and Bernanke refuses to talk about that money flow, which comes from U.S. taxpayers, while he's under oath in front of Congress.

IF AIG HAD PUT INTO BANKRUPTCY, the way it should have been given its hopeless condition of insolvency, AIG's hidden financial data (aka off-balance-sheet derivatives agreements, etc) would have been exposed by legal discovery for all to see. Look at Enron as an example, we had no idea whatsoever just how fraudulent Enron's business was until everything was exposed in bankruptcy court. The numbers were staggering. AIG's balance is many multiples larger than was Enron's, so it is very safe to assume that AIG's fraudulent business deals are as well. The above NY Times article exposes some of this fraud.

To further this analysis, had AIG been put into bankruptcy, the big Wall Street firms who had their liability exposure, which was at least $10-20 billion for Goldman Sachs alone, would not have been able to access any of the funding used to keep AIG breathing - they would have had to stand in line with unsecured creditors waiting for any crumbs that might have been left on the table after the liquidation process finished and the lawyers were well-fed.

The bottom line is that AIG's financial condition gets worse every day and it should have been thrown into bankruptcy immediately when it hit the wall last year. It was not put into chapter 11/7 because then Tim Geithner and Hank Paulson would NOT have been unable to channel over $100 billion in taxpayer money to the Wall Street firms who made failed business bets on AIG.

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