The below graphical AIG bailout timeline gives you all of the AIG bailout details in blazing scandalous glory. With government bailouts galore and an AIG bailout payback full of accounting gimmicks and politician’s hemming and hawing galore who can know exactly what will happen next?
Read on to learn all about the AIG bailout timeline and then why not make sure you have adequate insurance coverage so that you are protected from needing your own personal bailout? Enter your zip code above for free money saving insurance quotes!
The AIG Bailout Timeline Explained
Unless you were living under a rock (or working extra hours to pay your outlandish rock rent), you probably heard about the massive bailouts that the federal government rolled out over the past few years to help keep a few of the “too big to fail” investment companies and financial institutions afloat.
The argument was that these institutions had grown so huge that (due largely to deregulation that they had helped implement) if they were to suddenly collapse, the effect on the economy would be devastating (yeah, because the economy we have now, after the bailouts, is so much better). This infographic takes an in-depth look at the timeline of the massive AIG bailout.
August 5, 2007
AIG officials, on a conference call with investors, talk up the security and near-infallibility of credit-default swaps. Here are some highlight quotes:
“The risk undertaken is very modest and remote.” – Chief Risk Guy
“It’s hard for us, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions…” Joseph Cassano
“That’s why I am sleeping a little bit easier at night.” – CEO
What could possibly go wrong?
That same month Goldman Sachs (maybe you’ve heard of them) demands that AIG post $1.5 billion dollars in collateral. AIG agrees to post only $450 million.
October 1, 2007
VP of Accounting Policy (seems like an important job) at AIG Financial Products, Joseph St. Dennis, resigns. Reason? Joseph Cassano admits the following to him: “I have deliberately excluded you from the valuation of the [credit-default swaps] because I was concerned that you would pollute the process.”
Pollute it with what? Maybe fiscal responsibility? Who knows…
Later that month Goldman Sachs asked AIG for another $3 billion dollars in collateral. They agree to put up half.
AIG reports over $350 million dollars worth of unrealized losses from its credit-default swap portfolio. These are the same financial products that they said we pretty much infallible and would probably never lose a single dollar.
That same month an auditor from a company called PricewaterhouseCooper tells Martin Sullivan that AIG could have “material weaknesses” in its risk management of the credit-default swaps.
Another $1 to $1.15 billion dollars of unrealized losses due to credit-default swaps comes to light from AIG. This makes a $1.5 billion dollar shortfall for the year in 2007. Despite all this, Martin Sullivan tells his investors the following:
AIG’s economic loss is “close to zero.”
Their risk modeling system was “very reliable.”
Since the transactions were “conservatively structured” the AIG risk models had “a very high level of comfort.”
The same day (December 5) AIG tells the federal government (in a regulatory filing) that its auditor has found a “material weakness” in its valuation of the swaps and expands its prior disclosures of unrealized losses almost 6 billion dollars through November of 2007.
By February AIG is down $11.5 billion dollars for 2007. AIG posts a little over $5 billion dollars in collateral. They also valued their credit-default swaps at $527 billion. $61 billion dollars of that had exposure to subprime mortgages (see where this is going now?). Martin Sullivan remain optimistic (or has no contact with reality) and tells investors that all the massive losses that his company is seeing will just (magically?) reverse themselves and are totally not going to mean long term losses for the company. Meanwhile, Joseph Cassano “resigns,” meaning that he’ll no longer be responsible for the bad stuff that the company is going, but he’ll continue to get paid a million dollars per month as a “consultant.”
Total losses: $26.2 billion.
Total collateral posted: $16.5 Billion.
Standard and Poor cuts AIG’s credit rating because they haven’t been putting up enough collateral and may be exposed to too many “residential mortgage-related losses.” AIG scrambles to raise another $14.5 billion dollars worth of collateral. The Federal Reserve steps in to save AIG by pledging $85 billion dollars. This gives the government close to 80% equity interest in AIG.
The Fed gives AIG another $37.8 billion dollars. AIG announces that it has borrowed $70 billion dollars.
According to AIG, the total owed under the $85 billion dollar credit facility from the US government stands at $62.3 billion dollars as of November 5. This includes interest and fees. AIG companies also borrow $19.9 billion dollars under a separate $37.8 billion dollar securities lending agreement. That’s a grand total of $123 billion dollars that the fed government just put at AIG’s disposal. When’s the last time they gave you that much money?
AIG posts a record quarterly loss of almost $25 billion dollars, but posts $3 billion dollars in profit. It estimates its total unrealized losses from credit default swaps for 2007 and 2008 at $42.5 billion dollars.
To try to soften the blow of all these mistakes, AIG announces “voluntary executive compensation.” The CEO agrees to work for $1, the top seven officers and the fifty next-highest-paid executives forego pay raises through 2009. There will also be no bonuses for 2008.
The government bumps up its commitment to $150 billion dollars. That’s a lot of money.
AIG sells off HSB Group.
AIG sells off another fund management business to Merill Lynch and Bank of America.
AIG reports $61.7 billion dollars in fourth quarter losses, the largest quarterly loss in corporate history. The US government puts $30 billion more at AIG’s disposal. Even with all this, AIG pays out a number of “employee retention payments” (bonuses).
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