Sunday, December 20, 2009

A.I.G. Off the Hook?

In yesterday's New York Times, an important (and under the radar) op-ed was published by Eliot Spitzer, Frank Partnoy and William Black entitled "Show Us The E-Mail."

In this Opinion piece, Spitzer, Partnoy and Black recognize the recent efforts by bailed-out financial institutions to repay the bailout money in order to emerge from under the thumb of government regulation and oversight. It appears that A.I.G. is now in early talks with the Treasury in pursuit of an agreement to "sell[] the taxpayers’ 80 percent ownership stake in that company." Not so fast, urges Spitzer, Partnoy and Black.

To this point, precious little has been done to unwind A.I.G.'s massive role in torpedoing the American economy and setting off a global meltdown. This blog has carefully followed attempts by the Government to re-regulate the financial services industry, and has discussed A.I.G., credit default swaps and over the counter derivatives trading often. Can it be true that A.I.G. is about to make a deal that will allow it to emerge unscathed from its role in the crisis?

According to the NY Times op-ed:

"A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years. When A.I.G.’s financial products division collapsed — ultimately requiring a federal bailout of $180 billion — those who had been prospering from A.I.G.’s schemes scurried for taxpayer cover. Yet, more than a year after the rescue began, crucial questions remain unanswered. Who knew what, and when? Who benefited, and by exactly how much? Would A.I.G.’s counterparties have failed without taxpayer support?"

If the Treasury allows A.I.G. to sell its taxpayer owned portion of the company, then the Government will have no leverage to force the release of all of the e.mail traffic that may very well contain the evidence of "who knew what, and when?" and "who benefited and by exactly how much?" This is an unacceptable result.

Again, according to Spitzer, Partnoy and Black:

"As fraud investigators, we would like to examine the trading patterns of A.I.G.’s financial products division, and its communications with Goldman Sachs and other bank counterparties who benefited from the bailout. We would like to understand whether the leaders of A.I.G. understood that they were approaching a financial Armageddon, and whether they alerted their counterparties, regulators and shareholders to the impending calamity.

We would like to see how A.I.G. was able to pay huge bonuses to its officers based on the short-term income they received from counterparties for selling guarantees that, lacking adequate loss reserves, the companies would never be able to honor. We would also like to know what regulators knew, and what they did with the information they had obtained."

The American public, in fact the world, deserves to see what A.I.G. and its leadership was up to during the run-up to the greatest financial collapse since the Great Depression. The op-ed concludes:

"The longer it remains hidden, the less likely we will be to answer many questions about the A.I.G. collapse and the larger economic crisis — including the most important one: how do we prevent a repeat? Time is the enemy of effective investigation; records disappear, memories fade. The documents should be released — without excuses, or delay."

Will we have the political will to force this investigation?

1 comment:

  1. The events that have taken place over the last two years are indeed a travesty of the practices and principles of members within our financial industry. With AIG leading the pack, their efforts to come from beneath the scrutiny of the federal government, as well as the court of public opinion by simply repaying the bailout funds should in no way allow them to pass-through unscaved. Repayment should be only the beginning. At the time the funds were lent, all requests from the federal government and investigatory bodies for the emails, related documents and similar memorandum regarding their lending of financial products and derivatives trading processes should have been complied with immediately, Period. Notwithstanding that this process is long and daunting, we should all have more explanations on the table and under review than we currently do. I’m not sure where the regulators and enforcers of these requests are placing their efforts, but more pressure should have been and must continue to be applied to AIG and the like; many want answers…and an even number need solutions. The article highlights and I agree; that as time escapes us, bringing the truth forward regarding the incidents and indiscretions that led up to this massive collapse will soon be far from anyone’s reach. Allthewhile, the savvy architects of the less than ethical practices remain unaccounted for. While vital, a great deal of the focus has been towards salvaging what “global economy” we have left, but similar efforts are needed on the fact-finding, as well as solution building end of this trail. I will end with saying that our regulatory bodies and we, as the consumers must also take a look at our actions and how we can strive towards healthier and more realistic financial decisions.