AIG Mess

Hi Everyone:

The biggest news story this past week has been about AIG and the bonuses it paid out. I feel I would be remiss if I did not include this as this weeks topic.

I am going to start with a synopsis of the facts about AIG:

1) AIG stands for American International Group, Inc.

2) AIG started out as an insurance company and became a very profitable, well run and well respected company.

3) AIG then added hedge fund on top of their core insurance business by:

-Issuing insurance for mortgage-backed securities.

-Issuing insurance on debt held by other banks around the world.

4) When the housing bubble burst, AIG was left holding the bag for billions and billions of dollars for claims that it couldn't afford to pay.

5) The housing bubble burst first here in the United States, then it spread like a wildfire across the world.

6) The claims then multiplied exponentially until AIG was for all intent and purposes was broke and unable to pay out the claims.

My first reaction to the AIG mess was where was the common sense factor in the determination to insure those mortgage-backed securities? People in the housing, banking, insurance and investment industries know full well that the housing market has peak and valley cycles and that the peak cycle the world had seen for so long had to turn into a valley (sooner rather then later). Who would want to voluntarily insure sub-prime mortgages in the first place? It is painfully obvious that greed trumped common sense. Decisions based on greed almost always ends in failure. If common sense had been used, AIG would still be a healthy and profitable company. No hedge fund, no problem.

So far, AIG has received $170 billion in taxpayer money to keep it afloat for the moronic decisions upper management made. The government says that AIG is to big of a company to let it go into oblivion. Now as we all have just learned, AIG paid out hundreds of millions dollars in bonuses. Let's examine those facts:

-Contracts were made to retain the moronic employees who either: 1) made the decision to insure those now toxic mortgage-backed securities, 2) were at the helm that led to the downfall of a once great company and/or 3) were the top salespeople of those toxins.

-$218 million in bonuses were paid out not $165 million, to a total of 73 executives.

-7 executives received $4 million.

-1 executive received $6.4 million.

-Here's the kicker....................11 of those executives who received the bonuses are no longer employed by AIG.

Here are my questions and thoughts that come to mind regarding this:

-When the American taxpayer now owns 80% of AIG, who do they think they are in giving these bonuses of taxpayer money?

-If your company is broke, it is time to break the contracts and don't make any bonus payments.

-Bonuses are customarily paid when an employee meets or exceeds stated goals.

-Why give retention bonuses to employees who sank the ship?

-Why give retention bonuses to employees who are no longer even employed? Where is the retention? No retention, no bonus, period!

AIG has shown that its incompetence has ruled supreme and it just seems to get worse week by week. I just wish that other companies are seeing the err of AIG's ill fated decisions and that they make decisions with common sense as a major factor and not just greed.

Talk to you next week.