So the news today, has shed some new light on the A.I.G. situation, in that now the U.S. government wants to provide more aid to the failing insurance company, in the wake of the already agreed upon $700 billion bail out. The government's reasoning: because "initial bailout was putting too much strain on the company" (U.S. Provides More Aid to Big Insurer).
In an economy that is so overburdened with debt at the average consumer's level, and with confidence in the economy at an all time low, why is it that the Fed keeps pouring billions of dollars of taxpayers' money into a business that failed to do its job? Did the executives at A.I.G. not understand what they were getting themselves into? They busted their loan from the government, yet the government still keeps pouring funds back into the black hole of A.I.G.'s purse. If there is any reason to say to stop this erratic economic behavior it would be because of one of two things: a) the business model doesn't work, and our government cannot comprehend that point; or b) the government in fact is aware of the never-ending money pit, and there are several government interests at work here. In short why won't the Federal government let A.I.G. collapse under it's own lack of responsible financing. If the government continues to financially support a failed system on the taxpayers' backs, would that mean that the government also is failing its investors, the American people?
Basically, the Fed is giving a handout to a company that even its investors cannot trust, as Janet Tavakoli has stated that, "When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets...things do not heal until you take care of that" (A Question for A.I.G.: Where Did the Cash Go?). The inability of A.I.G. to supply all of its records, means that the true nature of its financial stability is hidden, and the fact that government can still supply money based on an unknown, show very poor management on both the Fed and A.I.G. executives. In addition to this premise, the Fed would have no basis on which to know how much bail out is needed, or if the bail out is indeed a lost cause. It's blatant unknown risk to the American taxpayer, and could eventually effect the global economy.
Back in 2005, Governor Spitzer of New York State filed a lawsuit against AIG concerning "deception and fraud". Spitzer alleged that AIG was misleading regulators by "hiding underwriting losses from an auto warranty unit, National Union, by transferring the losses to an offshore entity AIG secretly controlled; covering up losses in a Brazilian subsidiary, Unibanco Seguros, by linking the losses to a Taiwanese subsidiary, Nan Shan Life Insurance Co. Ltd.", and "deceiving regulators about AIG's ties to offshore entities" (Bernstein, J. (2005, May 27). Spitzer charges AIG officials with 'deception and fraud'. Newsday, (Melville, NY), Retrieved November 10, 2008, from Newspaper Source database.). Ironic, that a politician with the proper ethics to bring down Wall Street companies who participated in fraudulent schemes, was later, in March 2008, persecuted for being tied to a prostitution ring in Washington D.C., and was pressured by members of the New York Republican party to step down from office for his actions. What is most outrageous about this attack on a political figure who was attempting to rescue Americans from corporate fraud, is that in a Newsday article from November 6, 2008, drawing from statements of U.S. Attorney Michael Garcia, said that "we have determined that there is insufficient evidence to bring charges against Mr. Spitzer for any offense relating to the withdrawal of funds for, and his payments to..." a prostitution ring. NO EVIDENCE!!!! Yet he was accused of spending tens of thousands of dollars to pay for world class hookers, and stepped down because of these false accusations. A successful destruction of politician who was fighting against companies that today persist in stealing from the American purse.
The fraud is rampant throughout AIG's recent history, or maybe it's evident now that Spitzer had gotten the ball rolling. Previous to our current financial fall out, four of AIG's executives "were convicted of fraud and conspiracy to defraud by a court in Connecticut". Even after multiple attempts by the executive's legal team to dodge evidence, and the executives denying any wrongdoing, AIG itself, acknowledged its "accounting improprieties". So in a sense, these executives allowed financial practices of wrongdoing, but they themselves committed no wrongdoing. That's outrageously wrong, and they were guilty for intentionally mismanaging their business. There are two ways to make money, selling a valuable commodity, or robbing people through deceit (York, S. (n.d.). Five guilty of fraud that led to AIG chief's fall. Times, The (United Kingdom), Retrieved November 10, 2008, from Newspaper Source database).
Even as far back as February 2006, a year after Spitzer's allegations, AIG "agreed to pay $1.6 billion to settle charges of securities fraud" (NORRIS, M. (n.d.). SEC, New York to Share AIG Fraud Payout. All Things Considered (NPR), Retrieved November 10, 2008, from Newspaper Source database). In May 2005, San Francisco City Attorney Dennis Herrera, filed suit against AIG, accusing the company of "inflating earnings reports to boost stock prices, which have dropped nearly 30 percent since the company's May 1 report. The suit also accuses Berkshire Hathaway Inc.'s General Re Corp. of helping AIG create a sham insurance transaction" (Egelko, B. (n.d.). S.F. city attorney sues AIG over losses / Pension system lost $4.2 million after stock collapsed. San Francisco Chronicle (CA), Retrieved November 10, 2008, from Newspaper Source database). In October 2007, AIG was indirectly involved in yet another case of fraud, when executives of San Benito, TX-based Sweezy Construction Inc. were federally indicted on charges to commit "bank fraud, wire fraud and bankruptcy fraud". One item of interest in the indictments was that the executives were accused of "presenting false financial information to AIG insurance company in a scheme to get the insurance giant to issue a $30 million performance bond to Sweezy Construction". Whether or not AIG was aware of the fraudulent intentions, a company of its size should have had the managerial sense to implement claims investigations of the construction firm's assets, before insuring them (Perez-Trevino, E. (2007, October 3). Valley construction company indicted for fraud. Brownsville Herald, The (TX), Retrieved November 10, 2008, from Newspaper Source database).
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