Friday, February 12, 2010
AIG's Washington Follies
"Will regulators ever coherently explain why AIG could not be allowed to go bankrupt in September of 2008? ... This topic probably deserves another hearing on its own. Remember, the Federal Reserve Bank of New York, where Mr. Geithner was president, had by that time already seized AIG. We're guessing that a ratings agency is pretty comfortable with the credit-worthiness of a firm 79.9%-owned by Uncle Sam. ... In Washington's original telling, the company's insurance subsidiaries, heavily regulated by states, were safely segregated from the mess. ... Geither and Paulson['s] ... testimony directly contradicts that offered to Congress by former New York Insurance Superintendent Eric Dinallo, who was AIG's principal insurance regulator at the time. ... He was so confident in the health of the AIG subsidiaries, before the federal bailout, he was working on a plan to transfer $20 billion of their excess reserves to the parent company. ... This raises some serious issues for financial reform. The Geithner and Paulson story now is essentially that the system of heavy state insurance regulation was a sham. When push came to shove, policyholders were not protected from a default by the parent company. ... The real risk was closer to an implosion of AIG that would have jeopardized millions of insurance policies. ... We're not sure that the policyholders were really in danger, but Mr. Dinallo and other state regulators deserves a chance to respond on the record, and under oath", WSJ Editorial, 28 January 2010, link:
If AIG's real problem was that of AIG's policyholders and not AIG's counterparties, I am sure Zimbabwe Ben et. al., would have let AIG file bankruptcy. I don't accept anything these guys say.