AIG (American International Group)
AIG
Contents
Introduction
This report deals with the American International Group (AIG) scandal of 2008. Before the collapse of AIG and its credit reduction, AIG was the largest insurer in the world with total annual revenue of $110 billion. On September 2008, AIG’s credit rating was downgraded, and AIG was without enough collateral for credit default swaps sold to banks around the world forcing AIG to accept a massive federal bailout package from the U.S. government that had deemed AIG “To Big to Fail.” A confidential AIG memo that was leaked to the press warned of systemic risk if AIG collapses, and fixed the notional value of its toxic derivatives exposures at $1.6 trillion.
Accountability
AIG’s troubles started when the company’s 20 year chairman and CEO Maurice Greenberg was forced to resign after a series of fraud investigations in the mid-2000s. New York 's attorney general initiated an investigation concerning allegations that AIG had participated in bid-rigging schemes, paid insurance brokers to steer business its way, and for using fraudulent insurance transactions to bolster the quality and quantity of its earnings and underreported to state insurance departments the amounts of workers ' compensation premiums it had collected, on which it owed taxes. In 2005, it restated its financial results for five years beginning in 2000, a period when improper accounting inflated the company 's profits by more than $3 billion. By the end of 2008, AIG had borrowed at least $127.7 billion or 84% of the $152 billion the Federal Reserve had allotted to the company , a figure that has ballooned to $182 billion in U.S. taxpayer money .
The Beginning
It is believed that the trouble began in AIG 's Financial Products ' (AIGFP) London unit, decided to insure “collateralized debt obligations” (CDOs) collections of risky mortgage loans. Ratings agencies had initially graded many CDOs as a highest quality,
Contents
Introduction
This report deals with the American International Group (AIG) scandal of 2008. Before the collapse of AIG and its credit reduction, AIG was the largest insurer in the world with total annual revenue of $110 billion. On September 2008, AIG’s credit rating was downgraded, and AIG was without enough collateral for credit default swaps sold to banks around the world forcing AIG to accept a massive federal bailout package from the U.S. government that had deemed AIG “To Big to Fail.” A confidential AIG memo that was leaked to the press warned of systemic risk if AIG collapses, and fixed the notional value of its toxic derivatives exposures at $1.6 trillion.
Accountability
AIG’s troubles started when the company’s 20 year chairman and CEO Maurice Greenberg was forced to resign after a series of fraud investigations in the mid-2000s. New York 's attorney general initiated an investigation concerning allegations that AIG had participated in bid-rigging schemes, paid insurance brokers to steer business its way, and for using fraudulent insurance transactions to bolster the quality and quantity of its earnings and underreported to state insurance departments the amounts of workers ' compensation premiums it had collected, on which it owed taxes. In 2005, it restated its financial results for five years beginning in 2000, a period when improper accounting inflated the company 's profits by more than $3 billion. By the end of 2008, AIG had borrowed at least $127.7 billion or 84% of the $152 billion the Federal Reserve had allotted to the company , a figure that has ballooned to $182 billion in U.S. taxpayer money .
The Beginning
It is believed that the trouble began in AIG 's Financial Products ' (AIGFP) London unit, decided to insure “collateralized debt obligations” (CDOs) collections of risky mortgage loans. Ratings agencies had initially graded many CDOs as a highest quality,
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