Thursday, March 19, 2009


From Newsweek courtesy of Eschaton:

The Next AIG Scandal?

Most of this as-yet-undiscovered problem, Gober says, lies in the area of reinsurance, whereby one insurance company insures the liabilities of another so that the latter doesn't have to carry all the risk on its books. Most major insurance companies use outside firms to reinsure, but the vast majority of AIG's reinsurance contracts are negotiated internally among its affiliates, Gober says, and these internal balance sheets don't add up. The annual report of one major AIG subsidiary, American Home Assurance, shows that it owes $25 billion to another AIG affiliate, National Union Fire, Gober maintains. But American has only $22 billion of total invested assets on its balance sheet, he says, and it has issued another $22 billion in guarantees to the other companies. "The American Home assets and liquidity raise serious questions about their ability to make good on their promise to National Union Fire," says Gober, who has a consulting business devoted to protecting policyholders. Gober says there are numerous other examples of "cooked books" between AIG subsidiaries. Based on the state insurance regulators' own reports detailing unanswered questions, the tally in losses could be hundreds of billions of dollars more than AIG is now acknowledging.


AIG spokesman Mark Herr took strong exception: "We strongly disagree with Mr. Gober's analysis, which lacks a fundamental understanding of our commercial insurance operations' inter-company risk sharing agreements or even the basics of statutory accounting. Our primary regulators, including New York and Pennsylvania, regularly review our statutory filings as well as our intra-company risk sharing pool, and have raised no objections to this structure. They have repeatedly stated that we have sufficient financial strength to meet our obligations. In fact, in today's hearing on AIG, Joel Ario, Pennsylvania State Insurance Commissioner, commented that the insurance companies of AIG remain strong and well capitalized."

More here.

Right. Well, Enron said pretty much the same thing, "you don't understand." For that matter, Enron was also cooking the books, shifting around balance sheets and accounting deficits between multiple subsidiaries and whatnot in order to hide the fact that it was a paper tiger. And same thing with regulatory agencies: everybody thought Enron was in great shape until the day it no longer existed.

Granted, this potential AIG fraud is suggested by just one guy's analysis, but given the overall Wall Street cultural context, one of outrageous greed mixed with corporate contempt for regulation and reality, as well as the insurance giant's current credit default swap debacle mixed with its bonus scandal, I'd say there's enough here for an investigation. Sadly, as the article observes, there is no such thing as federal insurance regulations; only the states regulate insurance, which means only the states have legal power, at the moment, to look into this.

And that's kind of crazy, too. How is it possible that a firm as enormous as AIG, a firm with octopus tentacles all over the fucking place, is by and large out of the feds' reach? I've known for a long time how terrible neoliberal anti-regulation mania is for the country, but I'm starting to think it's far worse than I could have ever imagined. And what I've already imagined is pretty fucking horrible.

This is all so psychotic.