AIG: Angina-Inducing Greed

For those of you who may have just read the headlines and listened to the featured story blurbs on the news with passing interest, I will try to give you a simplistic version of what all the ruckus has been about 'AIG' and explain why you should care. Let's start with the basics. Who or what exactly is the American International Group. Well, AIG is by their own information "a world leader in insurance and financial services" and "the leading international insurance organization with operations in more than 130 countries and jurisdictions." Heady stuff, right? I mean, we are talking about the worldwide leader in insurance services and one of the largest financial services organizations on earth as well. We are talking here about the real money. Not just big money, but 'real' money. The kind of money that moves governments and shakes nations. The folks at AIG are just one of many financial services companies that have undertaken huge losses and faced dire straights as the American economy has gone into reverse over the past year. They blame their particular problems largely on what are called 'credit default swaps" (CDS) in the industry. Now a CDS is basically a financial instrument representing the exchange of risk that some entity will default on their debt. For instance, you own company 'A' and it is at risk of defaulting on its debt payments because the economy is turning sour and your business is drying up. Now some other company 'B' owns a bond investment in your company, they see you are in bad shape, and they want to hedge their risk against you going belly-up. So they go to the operator of a 'hedge fund' and basically purchase insurance, the CDS, against you defaulting. A 'hedge fund' operator is someone who takes on the risk of a company defaulting in the hopes of making a profit, since most companies over time have historically not ended up actually defaulting. They get that profit as the managers of company 'B' will pay interest to the hedge fund operators. Should your company 'A' never actually default, then the hedge fund loses nothing and gains all of the interest it has been paid by that 'B' company. If you do actually default, then the hedge fund loses because they have to pay the full amount of the CDS to company 'B' covering the loss in their investment with you. The worse position that your business 'A' is actually in, the higher the interest rate that the hedge fund will demand from company 'B' for that CDS insurance. So with the AIG situation, they basically said that there were huge amounts of actual defaults, massive losses, and that they would collapse without government intervention. This would mean the loss of one of America's and the world's major suppliers of capital and insurance funding, and what some said would be a major blow to the national and world economy. Of course there are many others who dispute this, who believe in the free market system, and believe that if you run an operation poorly or with risk that is too high, then you pay the price when you lose just as you make great profits when things are going well. The theory is that even if you do collapse and disappear, someone will emerge to step into the breach and take over that business need. But those of us free market individuals are not in charge right now. The power in America has shifted to a more socialist viewpoint espoused by new President Barack Obama and the Democratic Party. So rather than allowing AIG to collapse and pay the price for its riskiness, they decided to give it a 'bailout', or what was spun in positive terms as part of a 'stimulus' package. The government basically gave AIG the money to cover its losses and stay in business. But then AIG kept adjusting the amount that is said it had lost, and the government ended up bumping up the payments twice, until our government had given AIG a total of $180 billion dollars. Listen to that in the voice of Doctor Evil: "One hundred and eighty billion dollars!" From the government. That means from you and me, because the government gets its money from us in the form of taxes to begin with. So now you and I, 'We the People', literally own approximately 80% of the American International Group. So when AID got all that money to prop up their business and stay afloat, what did they do with it? Begin to invest it safely back into their operations and the markets, making them and the entire system stronger? Put it out into the world financial system and kick-start a recovery? Uh, no. Within days of receiving their first government funds, AIG sponsored a little company weekender bash at a swank California hotel with a price tag on the soiree' of nearly a half million dollars. Now this is a direct slap in the face to the American people, but it wasn't nearly the worst of AIG's greedy spending spree. The company then began to dole out hundreds of 'bonuses' to individual employees totaling approximately $165 million dollars. Bonuses! Most them going to employees in their financial products division, the exact same people with oversight of the very products that allegedly drove AIG into this mess in the first place. Now correct me if I am wrong, but people usually get a bonus for doing something good for the company? Something profitable? The theory being that any bonuses are coming out of that increased profit, right? Okay, just wanted to make sure that I did actually understand what a bonus was supposed to represent. So that is what has been happening in all the headlines that you have been seeing and hearing regarding AIG. On finding out about these bonuses, politicians and the media have shown righteous anger. You should care, and you should be angry as well. Because it is into your pockets that President Barack Obama and his Democratic Party cohorts are about to dig in order to get the money to pay for all of this 'Socialism', the government takeover of what should be private industry business. If you voted for Obama because you wanted 'Change', I hope that you knew exactly what that meant. It didn't just mean a change from Bush, who you hated. George W. Bush was leaving office anyway, his term was up, there was going to be change in any event. But the type of change you voted for was to change the very fabric of America, from a world-leader in a capitalist system to just another experiment in socialism, which has always failed everywhere it has been tried. The people at AIG are simply greedy and were looking to get nice chunks of your money out to their top executives as quickly and quietly as possible. They likely felt there was so much floating around that no one would really notice. We did notice, and now we should demand that at the very least the 'bonus' portion of the monies be returned to us. Of course this whole thing could have been avoided had we just not given them the money in the first place.

Greed is Not Good

"...Greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind. And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA." - Michael Douglas as Gordon Gekko in "Wall Street"

The Catholic Church divided sin into two classes - venial sins, which were relatively minor, and the more serious cardinal sins, which became known classically as the 'seven deadly sins'. These were said to "destroy the life of grace" and brought the threat of eternal damnation on those who practiced them, unless absolved through a formal confession or forgiven through an act of perfect contrition by the offender. One of these was the sin of 'Greed', which is seen as a sin of excess, and is applied in particular to the acquisition of wealth. It is closely alligned to avarice, which can manifest itself in bribery, robbery or theft by means of violence, trickery, betrayal, and even treason. It also covers the scavenging and hoarding of materials, as well as manipulation or abuse of authority. In the film 'Wall Street', Michael Douglas' character Gordon Gekko delivered the above now-famous speech at a shareholder's meeting. Gekko was trying to woo the shareholder's to accept a bid that his company was making to takeover the Teldar Paper company. His sales pitch was that the current Teldar management was bloated, wasteful, and borderline incompetent. Either that, or they were intentionally abusing their positions to ensure their own personal gain, the shareholders be damned. Gekko flat out says in his speech that the management was not greedy enough. They were not nearly as interested in turning a profit for the company, and increasing it's value for the shareholders, as they were in enjoying "steak lunches, hunting and fishing trips, corporate jets, and golden parachutes." But while Gekko painted himself as a "liberator" of companies, the fact is that his greed was every bit as dangerous for the company and the shareholders as any inappropriate or incompetent acts of the current management. The film highlights the many subjects in play in recent corporate scandals such as the Enron Corporation and Arthur Anderson accounting firm debacle, and today's collapses and bailouts involving Fannie Mae & Freddie Mac, Lehman Brothers, AIG, and Merrill Lynch. Big business, finance, mortgage, and insurance companies playing fast and loose with what is often other people's money, thinking that they have the system so securely managed that nothing can burst their upwards bubble, and not concerned if the bubble does burst because either they will be bailed out by the government, or be able to personally escape with few ramifications as individuals, or both. Fact is that financial speculation comes with risks. If a company or individual manages their finances well, and makes good, sound, stable decisions, they will usually come out ahead in both the long and short terms. If decisions are made on a more short-sighted basis that results in high financial rewards for both individual loan and account managers, as well as for customers, but also exposes all to greater risks, then the fact is that if the worse case develops everyone is going to take a financial hit. In fact, history would say that in such speculative periods the more appropriate word would be 'when' the worse case develops, not 'if'. So lots of bad loans were made, many speculative investments were made, over a number of years, and finally, inevitably, these markets have not been able to hold up, at least not in the short term. Companies and institutions are being sold or folding, or the government has been forced in to prop them up or outright take them over with public money. We the taxpayers have become the owners of mortgage and insurance companies. Much as the management of the fictional Teldar Paper, their poor decisions are coming home to roost. And much as the fictional Gordon Gekko, many of the big money men have proven too big for their britches. But most of them will soar off into the sunset without individual responsibility, some with those golden parachutes that Gekko spoke of in the film. In the end, it will be you and me, the regular tax payer, who will foot the bill for their poor business decisions, and that is not how our system is supposed to work. You can debate the importance of these institutions and their solubility from now until doomsday, but the fact remains that the winners are supposed to take it all, and the losers are supposed to take the fall, based on their business decisions. If it takes a few big businesses going under, if it takes a ton of money being lost, to straighten out what has ultimately become a house of cards, then so be it. Incompetence and greed, which despite what Gekko said is not good, should never be rewarded. The results of both deserve to be left to suffer the consequences, as educational for both the participants and for the rest of us.