AIG: The American Idol of Greed

The New York Fed, under Mr Geithner's leadership until he was appointed US Treasury Secretary in January 2009, instructed the troubled insurer to withhold details of the payments from the American public, which bailed out AIG by as much as $182bn at its financial nadir.

According to a series of emails obtained and made public by Congressman Darrell Issa, AIG had planned to inform investors in a regulatory filing published on December 24, 2008, that it had paid counter-party banks owed money at a rate of 100 cents on the dollar. The banks were owed the money for credit-default swaps they had entered into, mainly on behalf of clients.

However, according to the emails, an official from the NY Fed crossed out the reference ahead of publication, and there was no mention of the payments, which came to light five months later, in the filing.

"It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information," said Congressman Issa.

Publication of the potentially embarrassing emails comes two months after it emerged that it was the New York Fed that was behind a decision to pay the banks in full, rather than at a discounted rate.

"Our position has always been that if AIG's securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do," said a spokesman for the New York Fed.

AIG ( AIG - news - people ) fell 17%, Sanford C. Bernstein dropped the stock to "underperform," on concerns that Washington will pull back on financial assistance as AIG recovers. The firm is still on the hook for $80 billion in federal loans.

MetLife ( MET - news - people ) is down sharply, off 6%. The life insurer was downgraded by Raymond James to "market perform" from "strong buy." MetLife has enjoyed a bullish run since March; the stock has nearly tripled.

The big banks were all lower, Bank of America ( BAC - news - people ) dropped 4%; Citigroup ( C - news - people ) fell 6%. Bank of America was in the headlines on reports that the firm is offering to repay part of its federal bailout loans. BofA may repay the $20 billion it received to help it complete its acquisition of Merrill Lynch....

Shares soar nearly 27% Thursday on reports that salary for new CEO Robert Benmosche has been approved by Obama's pay czar.

NEW YORK (CNNMoney.com) -- AIG's stock closed at $47.84 on Thursday. At the start of the month, shares were trading at a mere $13.14.

AIG's stock has nearly quadrupled in August, but the company is no closer to paying back the $80 billion it owes taxpayers.

Investors got all wound up after the company announced in the past few weeks that it had appointed a new CEO and returned to profitability.

Shares gained another 27% Thursday after The Wall Street Journal reported that new Chief Executive Robert Benmosche's $10.5 million pay package has been fast-tracked for approval by Obama administration "pay czar" Kenneth Feinberg. AIG pressed for a quick decision on Benmosche's compensation, over concerns he might leave the company if it wasn't immediately approved, according to the report.

The news actually came as little surprise, since AIG had previously announced that Feinberg gave the pay package a preliminary nod of approval.

A spokeswoman for AIG said the company would not comment on the status of Benmosche's pay package or on the stock price.

Investors' excitement about AIG began to build on Aug. 3, when the company announced it would replace retiring Chief Executive Ed Liddy with Benmosche, the former MetLife (MET, Fortune 500) CEO. Shares gained a modest 3.5%.

The stock skyrocketed on Aug. 5, with shares soaring 63% on hints that the company would post its first quarterly profit since October 2007. On Aug. 7, when AIG announced it earned $1.8 billion in the second quarter, shares gained another 20.5%.

On Aug. 20, Benmosche said that he was optimistic the company would be able to pay back the more than $80 billion it owes the U.S. taxpayers and return to the company's former glory. Shares rocketed 21% higher that day.

"People really like this guy Robert Benmosche, because he's really a salt-of-the-earth New York financial guy," said Damon Vickers, managing director of Nine Points Management & Research fund, which has bought up AIG's stock in recent days. "He looks like he's got the spirit to take on this situation and make the best of it."

Since the beginning of the month, shares of AIG (AIG, Fortune 500) are up 264%. The company held a 20-1 reverse stock split on June 30, when shares closed at $1.16.

Vickers said AIG's stock has a chance to hit $60 in the near term and $100 in the coming months. He noted that after the stock split, AIG's all-time high stands at $1,400, so the stock has plenty of room to grow.

Since the government holds its 79.9% interest in AIG in preferred shares, taxpayers don't stand to gain from a steep rise in the company's common stock price.

Instead, the preferred shares pay a dividend. But the dividends on the TARP part of the bailout -- $41.6 billion, or about half of its overall loan -- are "noncumulative." That means that the company can skip dividend payments without the obligation to make up the difference later.

And that's just what AIG did on Aug. 3, failing to declare its dividend payment to Treasury.

Should AIG miss three more dividends, the government will have the right to nominate two more directors to the insurer's board.

Despite Benmosche and investors' enthusiasm, AIG is still a very troubled company with a sizeable debt to repay to the government.

The insurer has said it did not make enough profit to repay the taxpayers, and AIG said it won't likely be able to sustain a string of profitable quarters anyway, as it will take hefty restructuring charges for its looming core asset sales.

AIG plans on paying back the government by selling off pieces of the company. But those asset sales have been slow-going and sold at depressed values thus far, as credit remains tight. AIG has made just over $9 billion on those deals to date. As a result, AIG has agreed to spin off three huge chunks of its business, selling stakes in two of them to the Federal Reserve to reduce its loan by $25 billion.

Before his retirement on Aug. 10, Liddy reiterated that the company would likely be able to repay the government in full in three to five years, which Benmosche echoed last week.

The company also has to deal with the ongoing distraction of hundreds of millions of dollars in bonuses that have still yet to be paid to employees of its troubled Financial Products unit. The company became the subject of a public uproar after the revelation in March that AIG paid $165 million in bonuses to employees of the division that nearly brought the company to its collapse.

"As risky as AIG seems, it has the full backing of the U.S. government," he said.

"Apparently you can take that to the bank. I'm comparing AIG to a U.S. Treasury, and I know it's insane, but it's nonetheless true."

NEW YORK – The Securities and Exchange Commission said Thursday that former American International Group Inc. CEO Maurice "Hank" Greenberg agreed to pay a $15 million fine to settle fraud charges.

The charges are tied to an accounting scandal earlier this decade at AIG that led to Greenberg's ouster in 2005. The following year, AIG paid more than $1.6 billion to settle charges of improper accounting.

The case is unrelated to the government bailout of AIG, which is in the process of trying to sell off assets to pay off the $182.5 billion in loans it has received since last September.

The SEC said AIG's former chief financial officer, Howard Smith, will pay a $1.5 million fine tied to the investigation.

In complaints against Greenberg and Smith, the SEC said the pair were responsible for making misstatements that falsely showed AIG met or exceeded earnings and growth targets between 2000 and 2005. The pair did not admit or deny any wrongdoing as part of the settlement.

Greenberg was forced out of AIG after charges that the company had engaged in deceptive accounting practices surfaced.

A statement on behalf of Greenberg said the ex-CEO believes the settlement was appropriate to help put the matter behind him. A statement on behalf of Smith said settling the case allows the former CFO to move on and avoid future legal costs and the distraction of a lawsuit.

Greenberg, who built AIG over his 35-year career from a small company into the world's largest insurer, has been fighting the insurer in court in an unrelated case over who controls an employee retirement fund. AIG had accused Greenberg of plundering the AIG retirement program composed of $4.3 billion in stock through a company called Starr International Co., which Greenberg controls. A jury last month sided with Greenberg in the civil case saying he did not have to reimburse AIG for the stock, but the decision was only an advisory recommendation.

The judge hearing the case will make a final ruling on who controls the fund, and its purpose, by the end of the month. This case is also unrelated to the insurer's bailout by the government.

AIG is currently in the middle of a major overhaul as it looks to repay the government for the loans it received to avoid collapsing last fall at the peak of the credit crisis. In return for the loan package, which is worth up to $182.5 billion, the government received about an 80 percent stake in the insurance giant.

You may remember American International Group (AIG). The U.S. government gave it $182 billion of taxpayer money last fall in exchange for a 78 percent stake. Of that money, $165 million went for bonuses to a handful of people in its Financial Products Group (FPG), which sold Credit Default Swaps (CDSs) on which AIG lacked the capital to make good. And $200 million more is slated for those good folks in 2009.

Another $12.9 billion of our taxpayer money went to Goldman Sachs Group (GS) so AIG could pay Goldman 100 cents on the dollar for its CDSs. Hank Paulson wanted to keep the names of Goldman and the other recipients secret -- since so many of them were foreign banks, but the information leaked out in March 2009 after Paulson left office.

Now, thanks to some solid reporting in The New York Times, it looks like the rot at AIG is not limited to FPG. While AIG officials have claimed that its problems were isolated to FPG, the reality is that AIG seems to have been running something akin to a shell game of massive proportions. Its shell game version took the form of selling insurance and assigning the resultant risks among its 71 different North American insurance companies.

Thanks to AIG's regulatory arbitrage -- taking advantage of the fact that its 19 state insurance regulators never conduct examinations at the same time -- AIG may have been able to shift assets among the companies to fool state regulators. If one its companies did not have enough money set aside as reserves against future claims, AIG could move assets to that reserve-deficient company right before the state insurance examiner moved in. And once that examiner was gone, AIG could in theory shift the extra cash to the next reserves-deficient company.

Want an example? Consider AIG affiliate National Union (NU). AIG indicated to Pennsylvania state insurance investigators that it had $33.7 billion in assets at the end of 2008 -- more than enough to protect against $21.9 billion in liabilities. But what the Pennsylvania regulators did not see is that $10.9 billion worth of NU's assets were investments in other AIG affiliates, which are not publicly traded and whose value is hard to measure. Subtract that and you have only $22.8 billion in assets.

But wait -- there's more. NU had $42 billion more in liabilities that the Pennsylvania regulators missed. How so? NU had obligations to pay claims of other AIG insurance affiliates -- the biggest of which was $23.1 billion that it owed AIG affiliate American Home (AH). NU owed another $19 billion to several other AIG afiiliates.

Meanwhile, AH had crushing obligations of its own. While the New York state regulators thought it had $26.3 billion in assets to a mere $19.9 billion in liabilities, the reality was far more dire. How so? AH was on the hook for an additional $120.7 billion in guarantees to 16 other AIG affiliates. Thus AH's liabilities really exceeded its assets by $114 billion.

To summarize, AIG's core insurance companies seem to be like a shell game which AIG was able to continue operating because it was able to keep the cash moving from the affiliate that one state regulator had just examined to the one that another state regulator was about to examine.

Unfortunately, it would not surprise me if this was happening and continues to happen at all big U.S. insurance companies. Moreover, I would be shocked if former AIG CEO Hank Greenberg -- who has heaped scorn on his successors -- was unaware of this practice.

New Jersey has never been short of corruption scandals, but the one that unfolded yesterday was surprising even by the standards of the state that inspired "The Sopranos."

The key to the investigation: a real-estate developer who became an informant after being arrested on bank-fraud charges in 2006, according to a person familiar with the case. The developer, Solomon Dwek, wore a wire for the Federal Bureau of Investigation while offering to bribe New Jersey mayors and other public officials, that person said.

While the state has a long history of dirty politics -- in Newark alone, three ex-mayors have been convicted of crimes unrelated to the latest sweep -- the scale of the allegations shocked veterans of New Jersey's political crises....

The arrests place an added burden on Gov. Jon Corzine, a Democrat in his first term who is running for re-election this year. Mr. Corzine ran four years ago promising to quash corruption. "The scale of corruption we're seeing as this unfolds is simply outrageous and cannot be tolerated," he said in a statement....

American International Group is preparing to pay millions of dollars more in bonuses to several dozen top corporate executives after an earlier round of payments four months ago set off a national furor.

The troubled insurance giant has been pressing the federal government to bless the payments in hopes of shielding itself from renewed public outrage.

The request puts the administration's new compensation czar on the spot by seeking his opinion about bonuses that were promised long before he took his post.

AIG doesn't actually need the permission of Kenneth R. Feinberg, who President Obama appointed last month to oversee the compensation of top executives at seven firms that have received large federal bailouts. But officials at AIG, whose federal rescue package stands at $180 billion, have been reluctant to move forward without political cover from the government.

"Anytime we write a check to anybody" it is highly scrutinized, said an AIG official, who declined to speak on the record because the negotiations with Feinberg are ongoing. "We would want to feel comfortable that the government is comfortable with what we are doing."

The payments coming due next week include $2.4 million in bonuses for about 40 high-ranking executives at AIG, according to administration documents from earlier this year. Though the actual sum may have changed since then, the payments are much smaller than those that caused the upheaval in March.

AIG's upcoming payments do not fall under Feinberg's official purview, as they involve bonuses delayed from 2008. Feinberg is charged with shaping only current and future compensation. As a result, some Treasury Department officials believe they are under no obligation to offer an advisory opinion in this case, which could leave AIG officials to decide the matter on their own, according to a person familiar with the talks.

In November, AIG's top seven executives, including Chairman Edward M. Liddy, agreed to forgo their bonuses through 2009. Then, in March, facing pressure from Treasury Secretary Timothy F. Geithner and other government officials, the company restructured its corporate bonus plans for the remaining top 50 executives.

As part of this agreement, the senior executives were to receive half their 2008 bonuses -- which totaled $9.6 million -- in the spring, with another quarter disbursed on July 15 and the rest on Sept. 15. The last two payments would depend on whether the company made progress in revamping its business and paying back bailout money to taxpayers.

The exact range of the payments due this month to AIG executives was unclear in company disclosure filings.

AIG's proxy statement filed last month explains why AIG initially instituted the retention payments. The company stated that after the federal bailout began in September, "we needed to confront the fact that many of our employees, perhaps the majority, knew that their long-term future with us was limited, and our competitors knew that our key producers could perhaps be lured away. . . . Allowing departures to erode the strength of our businesses would have damaged our ability to repay taxpayers for their assistance."

The Treasury declined to comment specifically on the bonuses due this month. In a statement, a department spokesman said, "Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives. . . . We are not going to provide a running commentary on that process, but it's clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance."

The recent discussions between the company and Feinberg illustrate how politically sensitive the bonuses have become, both for AIG and for the Obama administration. No development in the government's bailout of financial firms has angered lawmakers and ordinary Americans more than the disclosure in mid-March that the global insurer was paying more than $165 million in retention bonuses. They were aimed at retaining 400 employees at AIG Financial Products, the troubled unit whose complex derivative contracts nearly wrecked the global insurance giant.

Ultimately, some of these employees vowed to return more than $50 million -- but not before the resulting firestorm threatened to undermine the government's effort to rescue the financial system. Lawmakers, including key allies of the administration, sponsored bills that would have levied harsh taxes on AIG and other bailout recipients offering bonuses to their executives.

Afraid of such congressional action, firms rushed to pay back federal aid, while others shied away from cooperating with the government in some of its bailout programs. Some initiatives had to be scaled down as a result.

The issue of bonuses, which had earlier been viewed by officials as minor relative to the larger problems in the financial system, began to consume the attention of top officials within the Treasury and Federal Reserve. Geithner attended long meetings to review payments, even those for low-ranking AIG executives.

Separately this week, a Citigroup analyst warned that AIG might be worthless to shareholders if or when it ever pays back the billions it owes the U.S. government.

"Our valuation includes a 70 percent chance that the equity at AIG is zero," Joshua Shanker of Citigroup wrote in a note to investors. He cites the continuing risks posed by the company's exotic derivative contracts, called credit-default swaps, and its sale of assets at low prices.

NEW YORK – The former top executive of American International Group Inc. plundered an AIG retirement program of billions of dollars because he was angry at being forced out of the company, a lawyer for AIG told jurors Monday at the start of a civil trial.

"Hank Greenberg was mad. He was angry," Wells said in U.S. District Court of the emotional state of the man who, over a 35-year-career, built AIG from a small company into the world's largest insurance company.

Wells said that Greenberg, within weeks of being forced out in mid-2005, gave the go-ahead for tens of millions of shares to be sold from a trust fund. The fund was set up to provide incentive bonuses to a select group of AIG management and highly compensated employees that they would receive upon their retirement.

Greenberg, 84, has contended through his lawyers that he had the right to sell the shares because they were owned by Starr International, a privately held company he controlled.

Starr International was named after Cornelius Vander Starr, who created a worldwide network of insurance companies in the early 1900s.

AIG maintains that Starr and Greenberg, his protege and successor, decided in the late 1960s to organize the various companies under one holding company, AIG.

Starr International remained a private company and its shareholders decided in 1970 that the amount that its shares of AIG were worth above book value of about $110 million should be used to compensate AIG employees, AIG has said.

The embattled insurer is trying to reclaim the money from Starr it says was wrongly pocketed through stock sales by Greenberg.

HARTFORD, Conn. -- A former executive faces sentencing in connection with an accounting scandal that authorities say cost shareholders of American International Group Inc. more than $500 million.

John Houldsworth, former chief executive officer of Berkshire Hathaway's General Re affiliate, Cologne Re Dublin, is scheduled to be sentenced Tuesday in Hartford.

Prosecutors say AIG ( AIG - news - people ) paid Stamford-based Gen Re in a secret deal to take out reinsurance policies with AIG in 2000 and 2001. They say the scheme propped up AIG's stock prices and inflated reserves by $500 million.

Federal prosecutors are asking for a reduced sentence for Houldsworth, saying his extraordinary cooperation helped convict five other executives in the case....

NEW YORK – American International Group Inc. on Thursday said its chairman and chief executive plans to step down when a search for replacements is complete.

The company also said its board agreed with a recommendation from Edward M. Liddy, who took over the insurer in September, to separate the chairman and CEO roles.

AIG will start a search for permanent leadership after the company's annual shareholder meeting June 30. At that meeting, investors will vote on a slate of six new independent directors.

Shareholders will also vote on a company proposal for a reverse stock split of the company's outstanding common stock at a ratio of 1 for 20, according to a regulatory filing.

The plan to split the chairman and CEO comes as AIG's corporate governance practices continue to receive intense scrutiny, after it paid out millions in bonuses despite a huge bailout from taxpayers.

AIG has received $182.5 billion in financial support from the government since September. As part of the loan package, the government has also taken a roughly 80 percent stake in the huge insurance company.

The company said the search for new leadership will include participation by both the reconstituted board and the trustees of the AIG Credit Facility Trust, which was established to represent government interests in the company.

Liddy, former CEO of Allstate Corp., was named chairman and chief executive on Sept. 18, in connection with the federal bailout. He succeeded Robert B. Willumstad, who was chairman since November 2006 and held the CEO spot since June.

AIG shares closed Thursday trading up 2 cents at $1.80, then lost a penny in aftermarket electronic trading.

The court estimates that checks will soon be mailed to more than 257,000 AIG investors that were affected by an alleged accounting fraud at the company, the SEC said.

The company, which did not admit or deny the allegations, had repaid its ill-gotten gains, as well as penalties to the government. In 2007, a federal court authorized the SEC to establish a 'fair fund' to distribute the money to harmed AIG investors.

"The commission continues to utilize the tools that Congress provided to ensure that funds are returned to harmed investors to the greatest extent possible," said Dick D'Anna, director of the SEC's office of collections and distributions, in an agency statement.

In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.

And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: “I think it might have been in the range of $9 million.”

“I was shocked to see that the number has nearly quadrupled this time,” said Cummings. “I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start.”

AIG spokesman Ashooh said the company’s revised accounting is the result of different wording of the questions asked by Cummings and POLITICO.

The new figure of $454 million, Ashooh said, “reflects all types of variable compensation across all of our businesses,” while the $120 million figure he provided earlier reflected only bonuses paid to corporate headquarters executives and high-ranking officers at its major businesses around the world. Ashooh said the $454 million figure includes the $120 million he had previously disclosed.

All of the numbers provided are on top of the controversial $165 million in retention bonuses offered to employees of a division of the company known as AIG Financial Products. It was the disclosure of those payments that set off a political firestorm earlier this year. Washington was stunned that employees of the very unit that had brought AIG to its financial knees were being so richly rewarded — especially after the company received $170 billion in taxpayer bailout money.

The controversial payments were described by the company as “retention agreements” paid to keep employees from leaving.

But the disclosure of the bonus payments to one division of the company prompted confusion about how big the companywide bonus pool was for 2008. That’s the question that has prompted three different answers from AIG officials.

AIG’s Ashooh says the account AIG is now offering includes a larger group of employees than had been counted to tabulate the earlier disclosures.

“I think we’ve been pretty forthcoming,” Ashooh said. “AIG is not a simple organization. We’re answering the question that we think we’re being asked.”

On March 19th, POLITICO asked AIG in an e-mail, “What was AIG’s total bonus pool (outside the retention agreements) for 2008?” To that, after some back and forth, AIG offered the $120 million figure.

Later in March, Congressman Cummings submitted written questions to AIG, asking: “Please specify the exact amount in bonuses — not retention payments or any other form of compensation — paid by AIG to employees of any division of AIG in 2008 or paid in 2009 for work performed in 2008.”

To that question, AIG disclosed a division by division breakdown of payments totaling $454 million.

The company said it maintains “approximately 374” plans that pay variable amounts of compensation based on performance. Citing the large number of recipients and concerns over the safety of AIG employees, the company declined to provide a list of the names of bonus recipients....

The company also disclosed that it is developing a new bonus plan for 2009 in consultation with the Federal Reserve and Treasury.

Mr. Liddy earned most of his holdings in Goldman, worth more than $3 million total, as compensation for serving on the bank’s board and its audit committee until he stepped down in September to take the job at A.I.G. He moved to A.I.G. at the request of Henry M. Paulson Jr., then the Treasury secretary and a former Goldman director.

Details about his holdings were disclosed in Goldman’s proxy statement and confirmed by an A.I.G. spokeswoman, who said they constituted “a small percentage of his total net worth.” Mr. Liddy had already owned some stock in Goldman Sachs before joining its board in 2003.

He has said that he considers his work at A.I.G. to be a public service, performed on behalf of the taxpayers, who ended up with nearly 80 percent of the insurance company. His goal is to dismantle the company and sell its operating units, using the proceeds to pay back the rescue loans. On Thursday, A.I.G. said it had sold its car insurance unit, 21st Century Insurance, to the Zurich Financial Services Group for $1.9 billion.

Along the way, Mr. Liddy has clearly disclosed that A.I.G. was serving as a conduit, with much of the rescue money passing through and ending up in the hands of A.I.G.’s trading partners.

Goldman has said in the past that it had collateral and hedges to reduce the risk of its exposure to A.I.G.

Still, his stake could represent a potential conflict and is likely to reignite questions about Goldman’s involvement in A.I.G., and about why taxpayer money was used to shield A.I.G.’s trading partners from losses, when asset values plunged everywhere and most investors suffered greatly.

Had A.I.G. simply declared bankruptcy, the financial institutions doing business with it would have ended up in court, as they did in the case of Lehman Brothers, fighting to get pennies on the dollar for their claims.

Instead, Goldman Sachs received $13 billion of the Federal Reserve’s rescue money to close out various contracts it had outstanding with A.I.G. It was one of the biggest beneficiaries of the government rescue.

A spokeswoman for A.I.G., Christina Pretto, dismissed any suggestion that Mr. Liddy’s financial ties to Goldman might have shaped his actions at A.I.G.

“A.I.G. is a large institution that engages in standard commercial activity with companies all over the world,” Ms. Pretto said. “These activities are handled in the normal, day-to-day course of business and rarely, if ever, rise to the level of the C.E.O.”

She said in particular that Mr. Liddy was not involved in the discussions of how to close out the contracts of A.I.G.’s counterparties in derivatives and other forms of trading.

According to Goldman’s proxy, Mr. Liddy holds 18,244 units of restricted stock, which would be worth about $2.2 million if they were sold at today’s market price. The rest of his holdings are in common stock. Restricted stock cannot be sold without incurring significant tax penalties, but the proxy said that Mr. Liddy’s restricted units would be converted to common shares on May 9.

Officials at the Fed, which initiated the bailout of A.I.G. last September, have said they were not happy about having to pour public resources into private sector companies, but felt that they had to do so to avoid a chain of losses at financial institutions all over the world.

State's 3rd-largest automobile insurer will change names when deal is done in summer

AIG Hawaii, the state's third-largest automobile insurer, is being sold as part of a $1.9 billion deal as owner American International Group Inc. takes steps to repay some of the billions owed in government bailout money.

The deal announced yesterday involves Los Angeles-based Farmers Group Inc. buying AIG's auto insurance unit, a move that will expand Farmers into Hawai'i for the first time.

Yesterday Farmers Chief Executive Officer Robert Woudstra said that Farmers had no immediate plans to make any changes to AIG Hawaii's 310-person staff or operations.

"It's a good fit," Woudstra said from his Los Angeles office, explaining Farmers does not have any business in the state currently.

"I can't tell you right now what we're going to call it, but the AIG name will have to go away."

AIG Hawaii had been contemplating a name change on its own given the stigma of being associated with its parent company, which had severe financial problems and needed a Federal Reserve-led rescue to avoid collapse last year.

In October, AIG put its auto group on the market as it looked for ways to pay off some of the bailout, which now totals about $182.5 billion.

AIG Hawaii President and Chief Executive Officer Robin Campaniano yesterday called the sale a positive development for the local unit. In 2008 AIG Hawaii's premiums written fell to about $100 million, about $18 million less than a year earlier.

Campaniano said some of the decline may have been due to clients departing because of the parent company's problems. A downturn in the Hawai'i economy contributed also.

"We're hopeful and very optimistic that the strength of Zurich and Farmers will greatly add to the presence we have in Hawai'i."

Farmers is owned by Zurich Financial Services Group, a Swiss company that serves customers in 170 countries and has business customers in Hawai'i.

AIG Hawaii insures about 100,000 cars in Hawai'i, along with offering homeowners, life, commercial and other insurance. Only Geico and State Farm insure more cars in the state.

Woudstra said he became familiar with the Hawai'i operations in examining AIG's business and that "it has performed exceedingly well for AIG."

He said he had gotten good reports about Campaniano, with people saying nothing but positive things about his reputation.

The AIG automobile business was operated under a unit known as 21st Century Insurance Group, which owned AIG Hawaii as well as running operations in 28 other states. The sale will require the approval of state insurance commissioners.

Yesterday Hawai'i Insurance Commissioner J.P. Schmidt said he would closely look at the deal because of the role AIG Hawaii plays in the state.

"Farmers and Zurich are both good, solid companies, so that's a good thing," Schmidt said. "But we'll be looking at the details and specifics to ensure that the people of Hawai'i are taken care of in the best possible manner.”

The sale may be completed this summer. Schmidt said he and other insurance commissioners had been working on a uniform application process so that the sale approval can be processed efficiently.

Catbird Note: More pages related to “good, solid companies,” Farmers and Zurich:

What brought down AIG, the lumbering financial giant, and with it the nation's economy? If you said reckless trading in exotic mortgage-backed securities, you're only half right. Turns out that our nation's deeply flawed merger review policy contributed just as much to AIG's demise as the company's high-risk credit default swaps.

Once upon a time--only about 10 years ago, to be more precise--AIG was a successful, rock-solid commercial property and casualty insurer. In 1998, the company bought Sun America, a huge firm that specialized in savings instruments for retirement. Then, in 2001, AIG bought American General, an enormous life insurance and consumer loan company.

Last quarter, according to press reports, AIG lost a staggering $18 billion in its retirement and life insurance businesses--just about the same amount the company lost from credit default swaps. No one seems to know just how much bailout money has gone into propping up AIG's Sun America and American General subsidiaries. But without taxpayer assistance, say analysts, AIG would have declared bankruptcy, requiring state regulators to take over existing insurance policies.

Insurance companies are exempt from federal antitrust laws, so AIG's two big acquisitions (and many others like them) escaped serious merger review. Stringent antitrust enforcement might well have mitigated the AIG disaster by preventing some of the company's ill-conceived acquisitions. But more likely, antitrust enforcers, enfeebled by decades of laissez-faire attitudes, would have blessed the deals.

The most influential antitrust thinkers of the Reagan era believed in scrutinizing closely only mergers between direct competitors--and then only if the mergers resulted in an outright monopoly. In this view, mergers between companies that offer complementary products (sometimes called "vertical" mergers)--AIG's commercial property insurance and Sun America's retirement instruments, as an example--merit not a moment's worth of attention because an acquisition in a related market rarely augments a company's ability to charge higher prices.

In fact, so the reasoning goes, mergers between companies that offer complementary products far more often increase economic efficiency by avoiding duplicative management and distribution costs. Deemed benign at worst, and more often beneficial, mergers involving complementary products attracted little antitrust attention.

This approach continued even when the Democrats took control of the nation's antitrust enforcement apparatus in the 1990s. Citing increased efficiency and the potential for economic growth, President Clinton signed the repeal of the Glass-Steagall Act, permitting commercial banks to expand into new markets by acquiring investment banks. As a result of lax merger policies, markets of all types became increasingly intertwined--and therefore more efficient, government officials assured us.

Economic apocalypse followed. The "efficiencies" from these mergers never really materialized. Instead, the mergers produced untoward concentrations of economic power, forcing single-product competitors out of business and raising customer prices.

Worse yet, discrete management oversights that might have produced limited damage in earlier generations became systemic failures precisely because markets had been linked together in vertical mergers and other complementary transactions.

In March, Fed Chairman Ben Bernanke acknowledged the obvious. He defended the massive financial bailout by arguing that some companies were not simply too big to fail, they were "too interconnected to fail." The invocation of putative efficiencies to justify mammoth vertical mergers is no longer credible.

Bernanke's admission comes late in the day. Permissive antitrust attitudes have already set up much of the economy for systemic disasters by permitting the creation of vertically integrated behemoths. Whole industries, beyond financial services, are now dependent on a supplier or two, and the failure of management in even the smallest cog of one of these vertical monstrosities can bring the whole enterprise down and, with it, all of the market's customers.

In my book, Free the Market!, I point to the roughly 40 complementary acquisitions Oracle made to restructure the entire software market for applications used by big companies. Oracle's successful acquisition strategy forces customers to choose a single supplier for most components of an enterprise software solution, rather than picking the most desirable products for each separate function from among different suppliers.

Expectations are high in the legal profession and in Washington that President Obama's antitrust enforcers will scrutinize mergers between direct competitors more carefully than their predecessors ever did. But the litmus test for the new administration's enforcement policies--the real indication of how much Obama's team understands the new interconnected economy--will come from its evaluation of deals involving companies that don't compete directly with each other.

A couple of months ago, the world's largest ticket-selling network (Ticketmaster) and the world's biggest concert promoter (LiveNation) announced their intention to merge. Proponents of the deal claim that the greater efficiency of bringing both functions under a single management will help the new company cut ticket prices in the future. Critics predict higher consumer prices as a consequence of concentrating economic power.

If the new president actually intends to invigorate antitrust enforcement as he promised during his campaign, you should expect the new antitrust enforcers in Washington to declare the Ticketmaster deal dead on arrival at the Justice Department.

Gary L. Reback is a Silicon Valley attorney who led the private sector antitrust crusade against Microsoft Corp. during the 1990s. He is also the author of Free The Market!, published in April by Portfolio, the business imprint of Penguin Group USA.

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Fallout from AIG bonus controversy is beginning to be felt by the insurer’s local operations.

In a March 16 letter to customers, AIG Hawaii CEO Robin Campaniano wrote that “some of you have contacted us to express your concern, and we share your frustration.”

Campaniano distanced the local insurer from its Mainland parent, which was sharply criticized by Congress and activist groups for issuing huge bonus checks to executives after receiving more than $180 billion in taxpayer-funded bailouts.

“The bonus payout by the holding company does not have any financial implications to AIG Hawaii, nor does it have any effect on your insurance premium or policy coverage,” Campaniano wrote.

“Last year we made a decision to stand by our customers in these tough economic tiems and we did not grant any performance bonuses in 2008. In addition, we made the decision that no employee of AIG Hawaii will receive salary increases or performance bonuses in 2009.”

AIG Hawaii is the third-largest auto insurer here and employs more than 300 workers statewide.

The company has sold more than $131 million in life insurance products, $29 million in homeowners policies and $90 million auto insurance policies statewide, according to the state Insurance Division.

Campaniano’s move to distance the local company makes sense. The bonus furor puts a huge target on AIG and competitors like State Farm and Geico are likely to capitalize on the controversy.

Demonstrators marched in New York’s financial district Thursday
to protest corporate excesses.

While the American International Group comes under fire from Congress over executive bonuses, it is quietly fighting the federal government for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens.

A.I.G. sued the government last month in a bid to force it to return the payments, which stemmed in large part from its use of aggressive tax deals, some involving entities controlled by the company’s financial products unit in the Cayman Islands, Ireland, the Dutch Antilles and other offshore havens.

A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.

The lawsuit, filed on Feb. 27 in Federal District Court in Manhattan, details, among other things, certain tax-related dealings of the financial products unit, the once high-flying division that has been singled out for its role in A.I.G.’s financial crisis last fall. Other deals involved A.I.G. offshore entities whose function centers on executive compensation and include C. V. Starr & Company, a closely held concern controlled by Maurice R. Greenberg, A.I.G.’s former chairman, and the Starr International Company, a privately held enterprise incorporated in Panama, and commonly known as SICO.

The lawsuit contends in part that the federal government owes A.I.G. nearly $62 million in foreign tax credits related to eight foreign entities, with names like Lumagrove, Laperouse and Foppingadreef, that were set up or controlled by financial products, often through a unit known as Pinestead Holdings.

United States tax law allows American companies to claim a credit for any taxes paid to a foreign government. But the I.R.S. denied A.I.G.’s refund claims in 2008, saying that it had improperly calculated the credits. The I.R.S. has identified so-called foreign tax-credit generators as an area of abuse that it is increasingly monitoring.

The remainder of A.I.G.’s claim, for $244 million, concerns net operating loss carry-backs, capital loss carry-backs, a general refund claim and claims for refunds of other tax-related payments that A.I.G. says it made to the I.R.S. but are now owed back. The claim also covers $119 million in penalties and interest that A.I.G. says it is due back from the government.

In part, A.I.G. says it overpaid its federal income taxes after a 2004 accounting scandal that caused it to restate its financial records. A.I.G. says in part that it is entitled to a refund of $33 million that SICO paid in 1997 as compensation to employees, which it now says should be characterized as a deductible expense.

A.I.G.’s lawyers in the case, at Sutherland Asbill & Brennan, referred calls to the company. Asked about the lawsuit, Mark Herr, an A.I.G. spokesman, said Thursday that “A.I.G. is taking this action to ensure that it is not required to pay more than its fair share of taxes.”

WASHINGTON – For a while, the disappearance of an executive bonus restriction from last month's economic stimulus looked like sleight of hand worthy of a Las Vegas stage. No one could explain how the provision faded into thin air. On Wednesday, Sen. Chris Dodd, D-Conn., acknowledged that his staff agreed to dilute the executive pay provision that would have applied retroactively to recipients of federal aid.

Dodd, the chairman of the Senate Banking Committee, told CNN that the request came from Obama administration officials whom he did not identify.

The provision was the subject of new attention this week because, had it survived, it would have prevented the American International Group Inc. from granting $165 million in bonuses to employees of its financial products division.

While the House and Senate reconciled their different stimulus bills last month, the Treasury Department expressed concern with a Senate restriction on bonuses, noting that if it applied to existing compensation contracts it could face a legal challenge.

"The alternative was losing, in my view, the entire section on executive excessive compensation," Dodd told CNN. "Given a choice, this is not an uncommon occurrence here, I agreed to a modification in the legislation, reluctantly."

An administration official said Treasury made Dodd's staff aware of the potential for litigation but did not demand that the provision be removed from the final bill. The official spoke on the condition of anonymity because he was not authorized to discuss the matter in public.

The legislation does include a provision that allows Treasury to examine past compensation payments to determine if they were "contrary to the public interest." Treasury Secretary Timothy Geithner on Tuesday said he was using that provision to determine whether the government could somehow recoup the AIG bonuses.

Over the years, Dodd has been the top recipient of campaign contributions from AIG employees. During 2007-2008, when he ran for president, he received nearly $104,000 from AIG employees and their families, according to the Center for Responsive Politics, a nonpartisan group that monitors money in politics.

In a statement, his office said Dodd only became aware of the AIG bonuses in the past few days. "To suggest that the bonuses affecting AIG had any effect on Sen. Dodd's action is categorically false," Dodd spokeswoman Kate Szostak said.

A mini-firestorm exploded Wednesday over U.S. Sen. Christopher Dodd's role in legislation regarding the huge bonuses at AIG, the highly controversial insurance giant that is receiving about $170 billion in federal bailout money.

Republicans and others are charging that Dodd was the main person behind the legislation that allowed the bonuses for the AIG employees.

But Dodd says he was never a member of the conference committee that inserted the legislation into the final version of the bill.

The bonuses have become a flashpoint over public anger regarding federal bailouts in general and AIG in particular. Everyone from President Barack Obama to Republican state legislators in Connecticut is decrying the bonuses.

Dodd's spokeswoman, Kate Szostak, is saying that the accusation that Dodd included the exemption for the bonuses is false, despite reports on Fox News, the Drudge Report, and the Rush Limbaugh radio show.

"Senator Dodd's original executive compensation amendment adopted by the Senate did not include an exemption for existing contracts that provided for these types of bonuses,'' she said.

The exemption that allowed the bonuses was crafted behind closed doors in a conference committee with top negotiators, including some of the most powerful members of Congress -- but not Dodd.

During the conference period, Dodd pushed for language that would require the U.S. Treasury Department to analyze any previous bonuses, according to Szostak.

"At the same time, Senator Dodd supported legislation by Senator Wyden that would tax the bonuses so that taxpayers could recoup some of this money,'' she said. "Unfortunately, that provision was removed from the stimulus bill in conference."

"Senator Dodd was completely unaware of these AIG bonuses until he learned of them in the past few days; to suggest that the bonuses affecting AIG had any effect on Senator Dodd's action is categorically false," Szostak said.

But Brian Walsh, a spokesman for the National Republican Senatorial Committee, had a sharply different view of the issue Tuesday afternoon.

"It is very disingenuous of Senator Dodd to suggest that he is now leading the fight to protect taxpayer money from going towards AIG bonuses when it was his own amendment to the stimulus bill last month that allowed AIG executives to receive these bonuses in the first place,'' Walsh said.

"It's even more disingenuous when you consider that Senator Dodd has received more political contributions from AIG than any other member of Congress. His rhetoric this week, which is only coming in the wake of public outrage, is typical Washington doublespeak, and the citizens of Connecticut deserve better."

In Connecticut, Republican legislators are trying to change the state law that AIG is citing, saying that the company is legally bound to pay the bonuses. The Connecticut state law says that if a company withholds payments that are due to employees, then those employees can file a civil lawsuit and win twice as much money. As such, AIG says that it could be forced to pay $330 million in bonuses – double the original amount of $165 million.

As long as everyone's talking today about AIG's payouts to its executives and foreign banks, let's remember the payouts AIG has made over the years to politicians. In the last 20 years American International Group (AIG) has contributed more than $9 million to federal candidates and parties through PAC and individual contributions. That's enough to rank AIG on OpenSecrets.org's Heavy Hitters list, which profiles the top 100 contributors of all time.

Over time, AIG hasn't shown an especially partisan streak, splitting evenly the $9.3 million it has contributed since 1989. In the last election cycle, though, 68 percent of contributions associated with the company went to Democrats. Two senators who chair committees charged with overseeing AIG and the insurance industry, Sen. Chris Dodd (D-Conn.) and Sen. Max Baucus (D-Mont.), are among the top recipients of AIG contributions.

Baucus chairs the Senate Finance Committee and has collected more money from AIG in his congressional career than from any other company--$91,000. And with more than $280,000, AIG has been the fourth largest contributor to Dodd, who chairs the Senate's banking committee. President Obama and his rival in last year's election, Sen. John McCain (R-Ariz.), are also high on the list of top recipients.

AIG has been a personal investment for lawmakers, too. Twenty-eight current members of Congress reported owning stock in AIG in 2007, worth between $2.5 million and $3.3 million. Sen. John Kerry (D-Mass.), one of the richest members of Congress, was by far the biggest investor in AIG, with stock valued around $2 million.

Last year AIG and its subsidiaries spent about $9.7 million on federal lobbying, or about $53,000 for every day Congress was in session in 2008. The company's spending on advocacy last year was down from an all-time high of $11.4 million spent on lobbying in 2007....

( http://www.opensecrets.org/news/2009/03/before-the-fall-aig-payouts-we.html )

It's not the bonuses. It's that AIG's counterparties
are getting paid back in full.

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.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

So here are several questions that should be answered, in public, under oath, to clear the air:

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? 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.

Why weren't the counterparties immediately and fully disclosed

Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.

WASHINGTON/NEW YORK (Reuters) - Goldman Sachs Group Inc and a parade of European banks were the major beneficiaries of $93 billion in payments from AIG -- more than half of the U.S. taxpayer money spent to rescue the massive insurer.

The revelation on Sunday by American International Group Inc was another potential public relations nightmare, coming on the same weekend that the Obama administration expressed outrage over AIG's plan to pay massive bonuses to the people in the very division that destroyed the company by issuing billions of dollars in derivatives insuring risky assets.

The size of the payments also illustrates how seriously a potential collapse of AIG was viewed by the regulatory authorities. U.S. Federal Reserve Chairman Ben Bernanke said in an interview with CBS news magazine "60 Minutes" that the failure of AIG would have brought down the financial system.

AIG, an embattled insurance giant that has received federal bailouts totaling $173 billion and is now paying $165 million in employee bonuses, is at the heart of a global financial crisis that President Barack Obama is trying to address with plans for trillions of dollars in spending.

As part of those efforts, Obama will announce steps on Monday to make it easier for small business owners to borrow money, officials said.

But the revelations that billions of U.S. taxpayer dollars were funneled through AIG to Goldman Sachs -- one of Wall Street's most politically connected firms -- and to European banks including Deutsche Bank, France's Societe Generale and the UK's Barclays could stoke further outrage at the entire U.S. bank bailout.

The fact that billions of dollars given to prop up giant insurer AIG were then transferred to European banks and Wall Street investment houses could raise new doubts about whether the rescue was really economically necessary.

"It doesn't to me seem fair that the American taxpayer has got to bear the 100 percent of the downside," said Campbell Harvey, a finance professor at Duke University.

"A hedge is not a hedge if you did not factor in the counterparty risk. And the U.S. taxpayer should not be obligated to make people whole for hedges that were not properly executed."

Goldman Sachs, formerly led by Henry Paulson who was treasury secretary at the time of the original AIG bailout, said, as it has in the past, that its AIG positions were "collateralized and hedged."

Deutsche Bank and Barclays declined to comment. Societe Generale was not available for comment.

As it seeks to ease the credit crunch that was the original target of the Troubled Assets Relief Program (TARP), the Treasury will also offer more details this week about the workings of proposed public-private partnerships to take toxic assets off banks' books, including a timeframe, a senior department official said on Saturday.

"No taxpayer in these arrangements is going to lose money until the investor who put up the money has lost 100 percent," said Chief White House economic adviser Lawrence Summers.

Treasury officials have said the fund, or funds, would be a vehicle to provide as much as $1 trillion in financing for buying bad assets -- particularly mortgages gone bad as a result of the U.S. housing bust. The Federal Reserve and Federal Deposit Insurance Corp would participate.

As more Americans lose their jobs and homes, Obama's new administration is under heavy pressure to show that the rescue plan for AIG and major banks is working to free up lending and rein in the riskier excesses of Wall Street.

The payments to AIG counterparties include the provision of collateral to back up credit default swaps, a form of financial insurance that AIG's London office was writing; the purchase of the collateralized default obligations, a type of complex debt security that underlay that insurance; and payments to counterparties of a securities lending program.

Through three separate types of transactions, Goldman received an aggregate $12.9 billion. Among European banks, SocGen was the biggest recipient at $11.9 billion, Deutsche got $11.8 billion and Barclays was paid $8.5 billion.

The AIG disclosures are still incomplete in that they do not include payments to the banks since December 31.

The list of counterparties was made public by AIG amid growing pressure on the insurer to come clean about the true beneficiaries of the bailout ahead of a congressional hearing on Wednesday at which AIG chief executive Edward Liddy is slated to testify.

Democratic Congressman Paul Kanjorski, whose committee will quiz Liddy, said the counterparties and bonuses would both be topics for investigation at the hearing.

Summers -- speaking before the payments to banks were made public -- called the AIG bonuses "outrageous" but said contracts must be honored, even though Treasury Secretary Timothy Geithner had "negotiated very forcefully" with AIG and done all that was "legally permissible" to limit the payments.

"We're not a country where contacts just get abrogated willy nilly," Summers, a former treasury secretary, said on CBS's "Face the Nation" program. "What the lesson is, is this: We don't really have a satisfactory regulatory regime in place."

To help small businesses, officials said Obama intends to provide $730 million from the congressionally approved $787 billion economic stimulus program to cut lending fees, boost loan guarantees and expand other programs.

"We know that small businesses are the engine of growth," Christina Romer, who chairs the White House Council of Economic Advisers, said on NBC's "Meet the Press."

As part of the financial rescue, the Obama administration expects private investors to bolster government funds to help cleanse the banking system of bad assets, said Austan Goolsbee, a member of the Council of Economic Advisers.

"It's better to do this jointly with private capital," Goolsbee told "Fox News Sunday." "I believe there is a reasonable expectation that people will participate."

The idea of offering financing support from the government for private investors willing to buy the toxic assets was first put forward by Geithner in February but the lack of detail has disappointed financial markets.

AIG's Liddy said in a letter to Geithner the giant insurer was legally obligated to make 2008 employee retention payments but had agreed to revamp its system for future bonuses after the Obama administration objected.

"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," Summers said.

Representative Barney Frank, the Democratic chairman of the powerful House of Representatives Financial Services Committee, said the government must see if the bonuses can be recovered, adding that the timing of AIG's commitment was important.

"We can't just violate law, legal obligations," Frank told Fox. "I understand that. But I do want to find out at what point these illegal obligations were incurred."

Mitch McConnell, the Republican minority leader in the Senate, called the AIG situation an "outrage" and said the nature of the contracts needed to be checked.

While the news that AIG bailout money went to foreign banks could further stoke political outrage, some experts said the alternative could have been worse.

"The nationality of the bank should not matter," said Peter Morici, professor at the Smith School of Business, University of Maryland. "We have an inter-related financial system. You do something to mess with that and all bets are off the table."

WASHINGTON — The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said.

But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.

Still, Mr. Liddy seemed stung by his talk with Mr. Geithner, calling their conversation last Wednesday “a difficult one for me” and noting that he receives no bonus himself. “Needless to say, in the current circumstances,” Mr. Liddy wrote, “I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”

An A.I.G. spokeswoman said Saturday that the company had no comment beyond the letter. The bonuses were first reported by The Washington Post.

The senior government official, who was not authorized to speak on the record, said the administration was outraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.

Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless.

The bonuses will be paid to executives at A.I.G.’s financial products division, the unit that wrote trillions of dollars’ worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages.

The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.

Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and “retention pay” had been agreed to in early 2008 and were for the most part legally required.

The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance.

The second group of bonuses covers some 2008 retention payments from contracts entered into before government involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.

The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.

But the official said the administration will force A.I.G. to eventually repay the cost of the bonuses to the taxpayers as part of the agreement with the firm, which is being restructured.

A.I.G. did cut other bonuses, Mr. Liddy explained, but those were part of the compensation for people who dealt in other parts of the company and had no direct involvement with the derivatives.

Mr. Liddy wrote that A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the financial products division had also agreed to reduce their salary for the rest of 2009 to $1.

Ever since it was bailed out by the government last fall, A.I.G. has been defending itself against accusations that it was richly compensating people who caused one of the biggest financial crises in American history.

A.I.G.’s main business is insurance, but the financial products unit sold hundreds of billions of dollars’ worth of derivatives, the notorious credit-default swaps that nearly toppled the entire company last fall....

Holder	Shares	Reported
STARR INTERNATIONAL CO INC	191,460,191	9-Mar-09
MAURICE R. & CORINNE P. GREENBERG JOINT TENANCY CO	25,269,689	29-Sep-08
C V STARR & CO INC	10,507,832	5-Dec-08
GREENBERG MAURICE R	12,889,788	30-Sep-08
C.V. STARR & CO., INC. TRUST	8,580,850	29-Sep-08

AIG's collapse caused a lot of pain, but its bailout package offered sweet relief for some.

After months of stonewalling, government-controlled American International Group finally revealed the names of the counterparties that were funneled $108 billion in taxpayer funds. The largest recipients of AIG bailout funds were European banks, Wall Street firms and, to a lesser degree, municipal governments.

While some of the payments disclosed were run of the mill obligations for an insurance company, the $52 billion that was used to satisfy or exit credit default swaps, insurance contracts on securities, are at the center of a growing storm of controversy. Last week, Federal Reserve Chairman Ben Bernanke was grilled on Capitol Hill over AIG's refusal to divulge details about these transactions.

The fundamental concern is that favored firms may have been overpaid for assets using a large chunk of AIG's $170 billion bailout package. Though it is now known who the counterparties are, AIG refused to itemize what exactly it each of them brought to the table. As a result, it's impossible to know if some firms got better deals than others, or if taxpayers got a raw deal all together.

During the fourth quarter, AIG spent $27.1 billion of its bailout money trying to entice counterparties to exit their positions. European banks lead the list with Societe Generale receiving $6.9 billion; Deutsche Bank, $2.8 billion; and UBS, $2.5 billion. Meanwhile, stateside, Goldman Sachs and Merrill Lynch received $5.6 billion and $3.1 billion, respectively.

Per existing swap agreements, AIG had to post $22.4 billion in collateral where the underlying investments were downgraded. Societe General received $4.1 billion; Deutsche Bank, $2.6 billion; Goldman, $2.5 billion; and Merrill, $1.8 billion.

AIG also had to post $43.7 billion during the quarter to unwind its securities lending business (See "AIG's Play For Time") and $12.1 billion to different municipalities that had guaranteed investment policies. California and Virginia received $1 billion each.

AIG's main businesses involved insurance, but it got into trouble when it started guaranteeing risky financial instruments through credit default swaps. This was hugely profitable until AIG's swaps, many of which were written against mortgage-backed securities, turned into colossal losing bets amid the collapse of the mortgage market, and regulators had to pull it onto the federal balance sheet to save it from collapse. (See "Fed Rescues AIG")

In November, the New York Federal Reserve Bank used taxpayer funds to finance a special investment vehicle dubbed Maiden Lane III that would be used to buy up the underlying assets on these types of swaps, thereby canceling the contract. (See "AIG. CDO. CDS. It's A Mess.")

Since its September rescue, AIG's initial $85 billion bailout package has been restructured and sweetened several times. After losing $61 billion in its fourth quarter, Treasury pumped it up with an additional $30 billion on top of its existing $150 billion bailout package.

As AIG comes clean about some of its murkier dealings, it also needs to come up with a new game plan. The original strategy for the insurer to sell some of its best parts to pay back its taxpayer borrowings is proving more difficult than anticipated due to a worsening market. (See "Blowing Up AIG")

NEW YORK (Reuters) – Where, oh where, did AIG's bailout billions go? That question may reverberate even louder through the halls of government in the week ahead now that a partial list of beneficiaries has been published.

The Wall Street Journal reported on Friday that about $50 billion of more than $173 billion that the U.S. government has poured into American International Group Inc since last fall has been paid to at least two dozen U.S. and foreign financial institutions.

Morgan Stanley and Goldman Sachs declined to comment when contacted by Reuters. Bank of America, Calyon, and Wells Fargo, which has absorbed Wachovia, could not be reached for comment.

The U.S. Federal Reserve has refused to publicize a list of AIG's derivative counterparties and what they have been paid since the bailout, riling the U.S. Senate Banking Committee.

Federal Reserve Vice Chairman Donald Kohn testified before that committee on Thursday that revealing names risked jeopardizing AIG's continuing business. Kohn said there were millions of counterparties around the globe, including pension funds and U.S. households.

He said the intention was not to protect AIG or its counterparties, but to prevent the spread of AIG's infection.

The Wall Street Journal, citing a confidential document and people familiar with the matter, reported that Goldman Sachs and Deutsche Bank each got about $6 billion in payments between the middle of September and December last year.

Once the world's largest insurer, AIG has been described by the United States as being too extensively intertwined with the global financial system to be allowed to fail.

The Federal Reserve first rode to AIG's rescue in September with an $85 billion credit line after losses from toxic investments, many of which were mortgage related, and collateral demands from banks, left AIG staring down bankruptcy.

Late last year, the rescue packaged was increased to $150 billion. The bailout was overhauled again a week ago to offer the insurer an additional $30 billion in equity.

Bankruptcy for AIG would have led to complications and losses for financial institutions around the world doing business with the company and policy holders that AIG insured against losses.

Representative Paul Kanjorski told Reuters on Thursday that he had been informed that a large number of AIG's counterparties were European.

"That's why we could not allow AIG to fail as we allowed Lehman to fail, because that would have precipitated the failure of the European banking system," said Kanjorski, a Democrat from Pennsylvania who chairs the House Insurance Subcommittee.

As part of its business, AIG insured counterparties on mortgage-backed securities and other assets. The collapse of the U.S. subprime mortgage market, which triggered a global financial crisis, left the insurer and some of its policy holders facing possible ruin as the value of assets declined.

U.S. regulators failed to recognize how much risk AIG was piling on in credit-default swaps, and by the time they understood, they had no choice but to pour in billions of public dollars, Kohn and other officials told the Senate panel.

Senators were outraged by the lack of details about where the bailout money has gone.

"That we find ourselves in this situation at all is ... quite frankly, sickening," said Senator Christopher Dodd, the Democrat who chairs the committee. "The lack of transparency and accountability in this process has been rather stunning."

Eric Dinallo, superintendent of New York State's Insurance Department, railed on Friday against AIG's failed business model, likening its insuring credit-default swaps as gambling with somebody else's money.

"It's like taking insurance on your neighbor's house and even maybe contributing to blowing it up," he said at a panel sponsored by New York University's Stern School of Business.

U.S. lawmakers have said they are running out of patience with regulators' refusal to identify AIG's counterparties.

On Thursday, Richard Shelby, the top Republican on the banking committee, said: "The Fed and Treasury can be secretive for a while but not forever."

NEW YORK -- The former chief executive officer of American International Group on Monday sued the company he led for 38 years, saying AIG misled investors about its exposure to subprime mortgages.

Maurice "Hank" Greenberg, 83, claimed in papers filed in federal court in Manhattan Monday that the company, once the world's largest insurer, has ruined his fortune by lying about its financial health.

The lawsuit says Greenberg, who served as AIG CEO from 1967 until he retired in March 2005, was the New York-based company's largest non-institutional shareholder. Christina Pretto, a company spokeswoman, said: "We believe the suit is without merit and we will defend ourselves vigorously."

AIG's stock fell to 42 cents Monday, as the government threw a stunning new $30 billion lifeline to the insurance giant, even as it confirmed it lost more than twice that much, $62 billion, last quarter. The source of trouble for AIG, which has 74 million customers worldwide and operations in more than 130 countries, is its business insuring mortgage-backed securities and other debt against default. That business imploded once the credit crisis struck with force.

The government has now made four separate efforts to save the company, totaling more than $170 billion.

Greenberg was forced out of AIG amidst a controversy in spring 2005 when the company restated its financial statements for the previous five years, acknowledging accounting improprieties, including "improper or inappropriate transactions."

New York regulators later accused AIG, Greenberg and the company's former chief financial officer of orchestrating an accounting scheme that made AIG's financial picture appear brighter than it was, misleading both investors and regulators.

The Federal Reserve Bank of New York announced today, with the full support of the Treasury Department, the formation of the AIG Credit Facility Trust. The Trust is being established for the sole benefit of the United States Treasury to hold the 77.9 percent equity interest in American International Group, Inc. (AIG) that will be issued in connection with the previously announced credit facility extended to AIG.

Three independent trustees have been selected by the New York Fed, in close consultation with the Treasury Department, to oversee this equity interest in the best interests of the U.S. Treasury. They are Jill M. Considine, former chairman of the Depository Trust & Clearing Corporation; Chester B. Feldberg, former chairman of Barclays Americas; and Douglas L. Foshee, president and chief executive officer of El Paso Corporation.

Pursuant to the terms of the Trust Agreement, the trustees will have absolute discretion and control over the AIG stock, subject only to the terms of the Trust Agreement, and will exercise all rights, powers and privileges of a shareholder of AIG. The trustees will not sit on the board of directors of AIG. Day-to-day management of AIG will remain with the persons charged with such management.

To avoid possible conflicts with the New York Fed’s supervisory and monetary policy functions, the Trust has been structured so that the New York Fed cannot exercise any discretion or control over the voting and consent rights associated with the equity interest in AIG. The New York Fed will, however, continue to monitor closely the financial operations of AIG in connection with its role as lender....

Jill Considine served as senior advisor of The Depository Trust & Clearing Corporation (DTCC) and its subsidiaries (securities depository and clearing house) from August 2007 to May 2008, having served as chairman since August 2006, and as both chairman and chief executive officer from January 1999 to August 2006.

Prior to joining DTCC, Ms. Considine served as the president of the New York Clearing House Association, L.L.C. from 1993 to 1998. Ms. Considine served as a managing director, chief administrative officer and as a member of the Board of Directors of American Express Bank Ltd., from 1991 to 1993. Prior to that, Ms. Considine served as the New York State Superintendent of Banks from 1985 to 1991. Ms. Considine also serves as a director of the Atlantic Mutual Insurance Companies, The Interpublic Group of Companies, Inc., Ambac Financial Group, Inc. and is chairman of Butterfield FulcrumGroup, Limited.

Ms. Considine recently completed a six-year term as a member of the Board of the Federal Reserve Bank of New York where she served as chairman of the Audit and Operational Risk Committee.Ms. Considine is a member of the Council on Foreign Relations and the Economics Club of New York. She served on the Group of Thirty Steering Committee on global clearance and settlement and as a member and speaker at the World Economic Forum in Davos. Ms. Considine was a Presidential appointee to the Advisory Committee for Trade Policy and Negotiations from 2003-2004. She was named Six Sigma CEO of the Year Award in 2006 and one of Crain’s New York Business 100 Most Influential Women in Business.

Ms. Considine earned a Bachelor of Science degree, with honors, from St. John’s University and a Master of Business Administration degree, with honors, from Columbia University. She also attended Bryn Mawr College.

Chester B. Feldberg served as Chairman of Barclays Americas from 2000 until his retirement in 2008. Prior to joining Barclays Americas, Mr. Feldberg had been executive vice president in charge of the Bank Supervision Group at the Federal Reserve Bank of New York from 1991 through 2000. In total, Mr. Feldberg was an employee of the New York Fed for 36 years, starting as a lawyer in the Bank’s Legal Department before moving to the Credit and Capital Markets Group and then the Bank Supervision Group. He was also a member of the Basle Committee on Banking Supervision from 1993 through 2000.

Mr. Feldberg serves on the Board of Directors and Audit Committee of Mizuho Securities USA, a subsidiary of the Mizuho Financial Group. Mr. Feldberg earned a Bachelor of Laws degree in 1963 from the Harvard Law School and a Bachelor of Arts degree in economics in 1960 from Union College. He also attended the advanced management program at the Harvard Business School in 1974.

Douglas L. Foshee is president, chief executive officer and a director of El Paso Corporation, which owns North America’s largest natural gas pipeline system and one of North America’s largest natural gas producers.

Prior to joining El Paso in 2003, Mr. Foshee served as executive vice president and chief operating officer for Halliburton. He joined Halliburton in 2001 as executive vice president and chief financial officer. Prior to that, Mr. Foshee was president, chief executive officer and chairman of the board at Nuevo Energy Company. From 1993 to 1997, Mr. Foshee served Torch Energy Advisors Inc. in various capacities, including chief operating officer and chief executive officer. He held various positions in finance and new business ventures with ARCO International Oil and Gas Company and spent seven years in commercial banking, primarily as an energy lender.

Mr. Foshee earned a Master of Business Administration degree from the Jesse H. Jones School at Rice University in 1992 and a Bachelor of Business Administration degree from Southwest Texas State University in 1982. He is also a graduate of the Southwestern Graduate School of Banking and Southern Methodist University.

Mr. Foshee serves on the boards of Cameron International Corporation, Children’s Museum of Houston, Texas Business Hall of Fame Foundation and Greater Houston Partnership. He also chairs the board of directors of the Federal Reserve Bank of Dallas, Houston Branch, and Central Houston, Inc. He is a member of the Independent Petroleum Association of America, Houston Producers’ Forum, 25 Year Club of the Petroleum Industry, National Petroleum Council, the Council of Overseers for the Jesse H. Jones Graduate School of Management at Rice University, Rice University’s board of trustees and KIPP’s board of trustees. Mr. Foshee is a recipient of the 2007 Ellis Island Medal of Honor for his commitment to helping children succeed and his leadership role in the business community.

[American International Group is the latest in a series of large-scale enterprises whose fraudulent accounting practices have recently seen the light of day. AIG is a very big fish, not only because of the quantities of money involved but because of long-standing connections to US intelligence. This is deep stuff, reaching back to the Vietnam War, the Philippines, and the post-1989 looting of Russia. Chin provides abundant sources and links - a timely exposé. - JAH]

July 1, 2005 1300 PST (FTW) American International Group's Maurice "Hank" Greenberg is now the target of multiple investigations into the orchestration of sham transactions, the inflation of reserves, illegal stock trades, deception, and book-cooking.

In an April television interview, New York Attorney General Eliot Spitzer declared that his office had "powerful evidence" that AIG was "a black box run with an iron fist by a CEO who did not tell the public the truth". In May, Spitzer filed civil fraud charges against Greenberg, in a probe that has ensnared another Wall Street god, Berkshire Hathaway's Warren Buffett. Buffett cooperated with the investigation as a witness (not a target). On June 9, 2005, two executives at General Re (a Berkshire Hathaway unit) pleaded guilty to conspiring to file false financial information. Spitzer is also pursuing Hank Greenberg's son, Jeffrey, in a separate investigation of bid-rigging at Marsh & McLennan (a top Bush campaign contributor). Jeffrey Greenberg quit as Marsh & McLennan's CEO in October 2004.

Super-elite Hank Greenberg - a legendary member of world planning groups (Council on Foreign Relations, the Bilderberger Group, the Trilateral Commission) and the Heritage Foundation, a former candidate for CIA director (1995), Bush family crony, and high-level functionary for all US presidents stretching back to Kennedy - remains supremely confident, and defiant. His net worth is still at least $3 billion. Greenberg has transferred hundreds of shares of stock to his wife and Greenberg family trusts. Greenberg is being defended by the high-powered attorney David Boies (of Bush v. Gore fame).

Many long-time critics of AIG are justifiably skeptical that the Spitzer case is anything more than another limited hangout - a "whiter shade of Enron" - that will permit Greenberg to skate. Although recent activity leaves the prospect of criminal charges open, Spitzer "reassured" Wall Street that criminal charges are not likely.

Besides questions about how aggressively Spitzer will pursue the evidence, there are conflicts involving Spitzer himself. According to the New York Post, Spitzer received $18,500 in campaign contributions from 16 attorneys from Paul, Weiss, Rifkind, Wharton & Garrison, where Spitzer once worked as an associate - and which currently represents AIG.

Although Greenberg resigned as CEO and chairman of the AIG board, Greenberg still manages Starr International (SICO) and C.V. Starr. SICO and C.V. Starr (which was already under fire for millions in diverted commissions and questionable executive pay) are AIG private holding companies that control billions in AIG stock. More importantly, the Starr companies constitute the conglomerate's original roots as an intelligence-related proprietary founded by OSS agent Cornelius Vander Starr.

Building on Scott's research, Michael C. Ruppert's investigation "AIG" (From The Wilderness, August 14, 2001) exhaustively deconstructed Greenberg and AIG, exposing continuing connections to covert operations, narcotrafficking, money laundering, and AIG's central role in the Wall Street/Washington power nexus. In addition to explaining how "insurance" is used in intelligence operations, Ruppert tracked down then-AIG employee Coral Talavera, the wife of Medellin Cartel co-founder Carlos Lehder. The questions raised by Ruppert regarding AIG's connection to Lehder and millions in drug money (laundered between 1987-1992) remain unanswered, and the dark realities about the conglomerate, studiously ignored.

TIME magazine's June 20, 2005 profile of the irascible Greenberg, "Down But Not Out" is written like a tribute (evidenced by the title). Still, even this breezy piece confirms how Greenberg has functioned as a career agent and strongman, deeply involved in America's most important Eastern operations for decades, for anyone with a grasp of history:

Greenberg was routinely the first foreigner to penetrate "politically combustible countries like Romania, Iran, Vietnam, and other parts of the Far East", and usually the first to be permitted to open business offices in these countries.

Greenberg, a "private citizen" was involved in sensitive high-level negotiations with (and occasional bullying of) Asian leaders, from the Philippines' Ferdinand Marcos to China's Zhu Rhongji.

Greenberg was among the top Wall Street elite who spearheaded the "free market transformation" of Russia in the early 1990s (which ultimately looted the country). (Note: Ruppert's FTW investigation revealed that as insurance carrier for the Bank of New York, AIG was indirectly linked to the laundering of up to $10 billion in criminal money out of Russia by the BoNY. Tip of the iceberg?)

Greenberg is a trustee of the Asia Society, founded by John D. Rockefeller III, where he sits alongside the likes of Richard Holbrooke (an AIG director), John D. Rockefeller IV, Nicholas Platt, and other members of the elite. The Asia Society plays a significant role in global geostrategy. (A just-concluded conference on the future of energy-rich Kazakhstan is further evidence of this.)

Will any probe follow the trail from the Wall Street business-as-usual swindles, into the heart of an American empire that sustains itself on destruction?

"In portraying Enron as a 'scandal', and as an isolated case of overheated capitalism and 'unusual political influence', the American corporate media and congressional investigators are avoiding the truth: Enron, like many multinational corporations, has functioned as an operational arm of the US government, and as a weapon of economic, political and territorial hegemony.

"In a "free market world" in which the goals of the state, corporations and the national security apparatus are indistinguishable… and government and business elites, linked by longtime ties, move seamlessly between public and private sectors, the hydra that is Enron is nightmarishly uncontroversial - and quintessentially American."

But as noted by Michel Chossudovsky (CovertAction Quarterly, Fall 1996), "Global crime has become an integral part of an economic system with far-reaching social, economic and geopolitical ramifications… the international community turns a blind eye until some scandal momentarily breaks through the gilded surface." At such a level, business is crime, and crime is business. The players operate right out in the open. Their ticker symbols fill business pages, and crawl across television screens every weekday morning. Their names, photos, and backgrounds are printed in glossy annual reports.

In a totalitarian Bush World in which the judicial system is irrevocably corrupted, crimes of global magnitude occur on a daily basis (and go unpunished), and the media functions as the Empire's handmaid, what is the likelihood that "almighty" Hank Greenberg - "our man in Asia" - will get his just due?

This morning yet again we were outside the doors of the AIG building in Fenchurch Street demanding they sell their blood money shares in HLS. This company is spending US tax payer's money on supporting the torture of monkeys, puppies and kittens inside HLS - what a disgrace! We were there from half eight to greet the workers going in and stayed for about an hour and a quarter. They didn't like the "World's biggest ever losers" placard one bit, though it is completely accurate.

We the made our way out of the City of London to do a couple of demonstrations against Barclays branches. We spent about an hour at Barclays in Piccadilly Circus. A member of the public stated to us that he would definitely close his account, and the support was generally very good here. Then, after a quick vegan burger in Soho, we demonstrated the Barclays in Soho Square.

The staff were not happy at this location and called the police, even though we were only chanting and handing out leaflets. The police told us that the Barclays staff wanted us on the other side of the road. We told the police that we wanted Barclays to sell their shares in HLS! The police didn't follow through with any of their pathetic threats and we carried on the demo.

A good trio of demos today and reaction was very good at all locations. We will only stop against these two companies when they sell their shares in HLS.

The sector was also mostly lower as American International Group Inc. reported the worst-ever quarterly loss in U.S. corporate history and said it would receive additional government support. Despite the AIG loss, its shares were one of the few to rise in midday trading Monday.

The KBW Insurance index, which tracks 24 of the nation's largest insurers, fell 1.9 percent to 50.75.

AIG said early Monday morning it lost $61.7 billion during the final three months of 2008 amid the ongoing credit crisis and recession. AIG's loss spurred the government to provide a fourth round of support for what was one the world's largest insurer.

The government pledged an additional $30 billion in aid to the company, on top of the $150 billion loan package AIG already received in November.

Shares of AIG jumped 6 cents, or 14.3 percent, to 48 cents amid the news as the government continues to ensure the insurer stays in business.

Greg Case, president and chief executive of insurance broker Aon Corp., said in a statement the additional government support will help provide further stability to the sector.

"Aon supports any action taken in the marketplace where clients will benefit from reduced uncertainty and volatility in the commercial insurance industry, as there is an ongoing need for capital in order to provide a baseline of stability as well as a continued flow of innovative products to help clients through this crisis," Case said. But, the government support for AIG showed little effect on other insurers.

Most other insurers fell Monday as well, with life insurers leading the declines. Life insurers were hit hard last week as credit ratings agency Standard & Poor's cut key ratings on 10 companies that operate in the space.

All four were down sharply Monday after tumbling Friday, with Conseco leading the drop. Conseco shares were also hammered as the company said it lost $406.8 million in the fourth quarter and its independent auditors raised concerns about the insurer's liquidity.

Among other life insurers, MetLife shares declined $1.14, or 6.2 percent, to $17.32. Shares of Hartford Financial Services declined 65 cents, or 10.7 percent, to $5.45. Prudential Financial shares fell $1.40, or 8.5 percent, to $15.01.

The life insurers fell despite a positive report from Citi Investment Research analyst Colin Devine, who said the sell-off among the stocks "seems completely disproportionate to the risks the industry faces despite the deteriorating economic climate."

In a research note, Devine said most life insurer's balance sheets were strong enough to handle the current credit crunch and ongoing recession.

Aside from AIG, the few gainers were mostly property and casualty insurers, like Travelers Cos., which rose 60 cents to $36.75 and Cincinnati Financial Corp., which gained 8 cents to $20.62.

March 1 (Bloomberg) -- American International Group Inc., the insurer deemed too important to fail, may get a commitment for as much as $30 billion in new government capital after a record quarterly loss, said two people familiar with the matter.

The insurer may also be allowed to make lower payments on government loans, said the people, who declined to be identified because there was no public announcement. New York-based AIG may forfeit part of stakes in its two largest non-U.S. life insurance divisions to lower the firm’s debt, the people said.

AIG, first saved from collapse in September with a package that grew to $150 billion, had to restructure its bailout after failing to sell enough units to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the insurer a “systematically significant failing institution” that has to be propped up, according to the Treasury.

“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.”

AIG, which agreed in September to turn over an 80 percent stake to the government, is set to announce a fourth-quarter loss of about $60 billion tomorrow, according to three people familiar with the matter. The company’s board was scheduled to meet today to vote on the revised bailout, according to two other people familiar with the matter.

The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG had to seek an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses.

Downgrades by Moody’s Investors Service and Standard & Poor’s may force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units could also lose access to the federal commercial paper program if they are downgraded, the company said. Rating agencies have signed off on the latest rescue, the Wall Street Journal reported today, citing unidentified people.

AIG may give up stakes in American International Assurance Co. and American Life Insurance Co., two life insurance divisions that operate in countries from China to the U.K. The holdings would go to a so-called special purpose vehicle to eventually position them for sale so AIG doesn’t have to divest them at distressed prices, according to one person familiar with the matter.

Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September, had to scrap his strategy to repay a $60 billion government credit line by selling AIG units after potential buyers were hobbled by their own losses. AIG struck deals to raise about $2.4 billion through sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses.

The Standard & Poor’s 500 Insurance Index fell by half since Liddy announced his plan, reducing the prices AIG units could fetch and thinning the pool of companies strong enough to bid for them. The $60 billion credit may be reduced to under the latest revision, a person said. The company had tapped about $38.9 billion of the facility as of Dec. 31.

Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable.

Goldman Sachs Group Inc., Societe Generale SA, Deutsche Bank AG and Merrill Lynch & Co. are among the largest banks that bought swaps from AIG, according to a person familiar with the situation. The insurer handed over about $18.7 billion to financial firms in the three weeks after the September bailout, said the person, who declined to be named because the information hasn’t been made public.

AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing.

AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks.

The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans.

The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.

Rapidly tapping into taxpayers' money, American International Group has accessed about $90 billion from the government since the Federal Reserve came to its rescue last month.

AIG said Friday that as of October 22, it had outstanding borrowings of $72 billion under the two-year $85 billion revolving credit facility. It is using these funds primarily for collateral obligations related to the AIG Financial Products Corp. credit default swap portfolio and for general corporate purposes.

In addition, AIG subsidiaries had received $18 billion in cash collateral in exchange for third-party, investment-grade fixed-income securities borrowed by the New York Fed under AIG's $37.8 billion Securities Lending Agreement arranged with the Federal Reserve Bank of New York.

The name of the game in the financial-services business these days can be summed up in three words: assets under management. He who ends up with the most, wins.

Witness the $48 billion merger of Travelers Group with Citicorp. This combination will create a huge new financial-services company--one with an insurance arm (Travelers), a banking unit (Citibank), and an investment house (Salomon Smith Barney).

The new firm, to be called Citigroup, will have over 100 million customers worldwide and control roughly $1.36 trillion in client investment assets (not counting bank deposits). That barely edges out Merrill Lynch, which has $1.35 trillion in client assets under management. UBS, the product of this year's merger between Union Bank of Switzerland and Swiss Bank, controls $1.09 trillion in client assets.

More recently, rumors have been flying that insurance giant AIG will try to snap up Goldman Sachs after Wall Street's most prestigious investment bank goes public as early as this fall. There's also talk that securities firm Lehman Brothers or brokerage house PaineWebber could fall prey to a large European bank like Deutsche Bank.

Given the grab for client assets under way in the industry, Worth was surprised to learn there's no single source of reliable information that ranks the top firms. So we researched our own list of the top ten. Included in each firm's total are institutional assets, brokerage accounts, mutual funds, variable annuities, and private-banking accounts--everything but retail bank deposits. We also looked only at U.S. companies.

Client assets, of course, aren't the only measure of a financial company's clout. Revenue, equity capital, and the institution's own asset base all provide different pictures of a firm's size and strength. The new Citigroup, for instance, will have $44 billion in capital. But it won't stay on top for long.

When NationsBank completes its previously announced merger with BankAmerica (expected in early October), it will have $48.9 billion.

The Top Ten in Client Assets (in Billions)
1.	Merrill Lynch The current leader in the grab for client assets under management isn't resting on its laurels. It wants to hit the $2 trillion mark by 2002.	$1,352
2.	Travelers The Merger with Citicorp, expected in early October, will bump it to the top of this list--barely. The new firm, to be called Citigroup, will have $1.36 trillion in client assets.	1,140
3.	UBS Formed by the merger of Union Bank of Switzerland and Swiss Bank, this firm is on our list because its institutional business is managed by UBS Brinson in Chicago.	1,093
4.	Fidelity Investments The total here includes the $616 billion managed by Fidelity's horde of mutual funds. Most of the rest is housed at Fidelity's discount-brokerage operation.	941
5.	Barclays global investors This San Francisco firm, a unit of Barclays Bank, has only about 1,400 clients. But they are very large clients--institutions with an average of $400 million each.	564
6.	Mellon Bank This outfit's Dreyfus subsidiary accounts for $110 billion of its client assets under management. Mellon itself focuses on institutions and high-net- worth individuals.	460
7.	State Street The vast majority of its total comes from its 8,000 institutional accounts as opposed to its 16,000 retail customers, including the owners of its SSgA mutual funds.	459
8.	Charles Schwab This discount broker, based in San Francisco, makes the list on sheer volume, with 5.4 million customers. A full half of its stock trading now occurs on the Internet.	400
9.	Vanguard Group Index funds are at the fore of Vanguard's product offerings. So while it has lots of money in its coffers, the market itself dictates Vanguard's investments.	375
10.	Morgan Stanely Dean Witter Though last on this list, Morgan Stanley fairs better by other traditional measures of financial clout. For instance, it is third in total revenue and second in total assets.	374*
Data as of 6/ 30/98. Data as of 5/31/98. Sources: Company reports and Market Guide.*

The following individuals contributed at least $50,000 to federal candidates and parties during one or more election cycles while affiliated with the organization.

Donor Name	Occupation	Date	Amount	Recipient
BROAD, ELI MR	AIG SUNAMERICA INC