AIG Complaining About Terms of Takeover

Mar 9, 2009

They just don’t get it. The party is over and this is never going to be the same. AIG stood on a street corner like a hooker selling default swap insurance as though they were apples. Only they had no apples — or assets to be more specific, to back them up. Bears Stearns did the same thing and so did dozens of other players on Wall Street — selling credit default swaps to each other and booking it as income, which would thereby raise the value of their stock, which would upon sale of the stock by the company or its officers net tidy fortunes. That left all the “little guys” holding the bag. And they didn’t care.

The problem was and is that all this paper was “toilet paper” as Rick Wagner said in an interview with The New York Times. And this is just the beginning of the mess. The response to Mr. Greenberg, along with an indictment (in my opinion), should be shut up and get out of the way. Nothing can change the reality that the paper was toxic waste from top to bottom — from mortgage backed securities, through insurance, credit default swaps, cross collateralization, overcollateralization and undisclosed table funded loans with monstrous undisclosed fees paid and actively hidden from the investor who put up the money and the “borrower” who got part of that money in exchange for a signature which made the “borrower” actually an “issuer” (of securities) is a massive PONZI scheme involving the sale of unrelated securities using blatently false pretenses, lies and deception. From the looks of things the only people who actually lost money on this deal are the homeowners who are now left with less than zero (“under water”) and some of the investors who have not (yet) been bailed out.

But go ahead and blame the borrower if you like. Whether you do or not, this mess is not going to get cleaned up until the policy solution is rooted in reality. The reality is that both the mortgage backed securities and the “loan” papers were oversold using vastly inflated prices. The current foreclosure plan basically consists of this pitch: “Hi! I’ve got this $200,000 house and I want you to buy it, but I’ll give you really good mortgage terms! I’m sure you’ll agree that this is a great deal because you are already in the house and have your stuff in it. Wait! Where are you going? No, don’t do that! Don’t drop the keys on the counter. What’s that you say? I can’t do that, I’m not double jointed.” Good luck.

Reality 101: In the end, nobody is going to buy that deal except a few saps. In reality people are going to look at a rental or an owner financed house which gives them a payment of 1/2 what the new modification would cost and allows them to build equity through savings or amortization — instead of reducing negative equity in the hope of getting to zero. Listen up guys, people are not as stupid as you want and need them to be in this situation. This kind of deal worked a few years ago when nobody was looking. People are wide awake now and they get it.

Greenberg attacks US over AIG

By Francesco Guerrera and Chrystia Freeland in New York

Published: March 8 2009 23:30 | Last updated: March 8 2009 23:30

Hank Greenberg, the former chief executive of AIG, has accused the US government of bungling the insurer’s rescue by imposing a high-interest loan and forcing the repayment of $30bn-plus to banks and partners.

In a video interview with the Financial Times, Mr Greenberg, who led AIG for 38 years before being ousted in 2005 during a probe of its accounting practices, suggested the US authorities’ actions made the company’s break-up inevitable.

“You’re not going to see an AIG – AIG will be gone, it will be broken up into many pieces,” he said days after the company, which is 80 per cent owned by the government, received its third bail-out in five months.

AIG and government officials reject Mr Greenberg’s accusations and say his criticisms stem from his status as one of AIG’s largest shareholders and his legal wrangles with the company.

Mr Greenberg is believed to have suffered million-dollar paper losses from the collapse of AIG’s share price.

He has been involved in a legal case with AIG, which is challenging his right to hold part of his stake.

Mr Greenberg attacked the government’s decision last November to pay out more than $30bn to institutions that had purchased AIG’s insurance on mortgage-backed securities.

He argued that although the value of those collateralised debt obligations had fallen sharply – and AIG had suffered big losses on them – the counterparties, which are believed to include Goldman Sachs, Deutsche Bank and other Wall Street names, had the full value of their investments returned.

“Christmas came early for many of them. It was a gift,” Mr Greenberg said.

Asked whether he thought shareholders and taxpayers were unfairly subsidising the company’s counterparties, he replied: “I think that is one thing.”

Federal Reserve officials have said the repayment of the CDOs was vital to avoid disruption in credit markets.

Mr Greenberg criticised the interest rate of 850 basis points over the London interbank offered rate on the $85bn loan in the government’s first rescue.

“If you think that is a way to save a company, then we have a disagreement,” he said.

“That’s a way to liquidate a company, not to save a company.”

Fed officials said the loan’s original terms were the ones AIG had offered investors in its attempt to raise funds and avoid a collapse in September.

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