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AIG – Government Missed Point

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AIG Failure TARP Bailout

The Government Missed The Point of AIG.The following is a passage from a document published by the UNITED STATES DEPARTMENT OF THE TREASURY – OFFICE OF FINANCIAL STABILITY Troubled Asset Relief Program:

Picture Of Depart Of The Treasury Government Missed Badge
Wikimedia Commons – woodley wonderworks

Two Year Retrospective. This is better known as the TARP program. Yes, I did read this to see the Feds take on the crisis. Approximately 9 pages were dedicated to the AIG Bailout. I am going to include the passage and then comment on it in the next post.

Amidst these events, on Friday, September 12, American International Group (AIG) officials informed the Federal Reserve and Treasury that the company was facing potentially fatal liquidity problems. Although it was neither AIG’s regulator nor supervisor, the Federal Reserve Bank of New York (FRBNY) immediately brought together a team of people from the Federal Reserve, the New York State Insurance Department, and other experts to consider how to respond to AIG’s problems. Congress gave the Federal Reserve authority to provide liquidity to the financial system in times of severe stress, and it acted to fulfill that responsibility.

At the time, AIG was the largest provider of conventional insurance in the world, with approximately 75 million individual and corporate customers in over 130 countries. AIG’s assets exceeded $1 trillion. It was significantly larger than Lehman Brothers. It insured 180,000 businesses and other entities employing over 100 million people in the U.S. It was a large issuer of commercial paper and the second largest holder of U.S. municipal bonds. AIG’s parent holding company, which was largely unregulated, engaged in financial activities that strayed well beyond the business of life insurance and property and casualty insurance. Its financial products unit was a significant participant in some of the newest, riskiest, and most complex parts of the financial system.

Picture Of AIG Government Missed Lobby
Wikimedia Commons – David Shankbone

In the chaotic environment of September 2008, the Federal Reserve and Treasury concluded that AIG’s failure could be catastrophic. Among other things, if AIG had failed, the crisis would have almost certainly spread to the entire insurance industry, and its failure would have directly affected the savings of millions of Americans in ways that Lehman’s failure did not. Therefore, the government took action to protect the financial system.

AIG needed a durable restructuring of both its balance sheet and its business operations. Falling asset prices generated substantial losses on the company’s balance sheet. They also increased the payments to counterparties that AIG was required to make under the terms of credit protection contracts it had sold. AIG’s insurance subsidiaries experienced significant cash outflows related to a securities lending program, as the value of residential mortgage‐backed securities that they had purchased and loaned against cash collateral continued to fall.
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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

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  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
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