Could someone explain this AIG bailout garbage to me?

As I understand it, AIG is one of, if not the largest insurance companies in the world.
Furthermore, Insurance is the biggest scam since banking, with the only other comparable rip offs being oil/gas and pharmaceuticals. ... oh yeah, and government. Once you go below those, some people somewhere generally have to be doing some work or something. Whatever, minutiae aside, it's tough to find many businesses more profitable than insurance (and banking). So why do they need an XX billion dollar bailout? While I'm on the subject, the only other business that gets bailouts on the size of AIG's are banks (airlines, auto manufacturers, trains, and utilities get em too, but not on the same order). WHY? Yes, it's some sort of scam/rip off, but really, WTF? Hey, while they're at it, I could use a bailout too? Anybody wanna throw a million my way? Heck it's like a penny compared to what the big boys get when they need a bail out. Man, with all the money we spend on bail outs and war, we could probably just put it all in a compounding interest account and pay each american family a base salary of 50k each jan. 1st and tell everyone to stop complaining.
So yeah, how does the largest insurance company in the world come to the point of needing a bailout from the US government?
-v

It is not the US govt who bails out AIG, the FED is a privately owned bank that just bought AIG by printing money out of thin air.

The govt only got involved because they don't want to fall yet.

And by inflation/rent the people have to pay it back.

So indeed it is one big scam...

Originally posted by verbal kint
how does the largest insurance company in the world come to the point of needing a bailout from the US government?

they insure all kinds of things. when Lehman Bros. needed a policy to cover their potential failure to pay for their London offices, they used AIG. So, when lehman fails, AIG is now on the hook for the cost.

AIG's rating was lowered, and the banks that lend to them required additional collateral as a result of this lower rating. AIG didn't have it. The loans were callable as a result.

I found this blog which gives a nice explanation of the arena they were playing in:
jgarven.blogspot.com...

reply to post by Crakeur


I read that blog. Over my head. I tried to go over it a couple times again but too many overlapping dictionary look-ups. However, it did give me an idea. Is this a significant part of the issue:

So every jerk-off and their mother gets a "yeah, right" loan and buys a house. One thing I've noticed about mortgages that I wasn't aware of till the last 5 years or so, is that they seem to come including an added monthly fee for "mortgage insurance" now. Was AIG providing much of this mortgage insurance? Then, I could see with all the defaults/foreclosures, they would then be required to pony up the cash for all those mortgages right? I'd think that would sink anyone?

mortgatge insurance is something people get to protect themselves in the event they cannot make their payments. I'm not sure if AIG was involved in this but I wouldn't be surprised.


the CDS (Credit Default Swap) issue is a somewhat confusing area but, in a nutshell, a CDS is like an insurance policy where a buyer pays a seller in exchange for a right to a payoff in the event of a default.

So, customer A pays AIG and borrower B defaults on their loan and AIG now has to pay customer A.

Insurance is, for the most part, a scam. It's really no different from a game of chance. I bet AIG that I will die before I turn 65. AIG says I will live. In a way, I'm gambling on my life.

reply to post by Crakeur


A slight correction Crakeur. Mortgage insurance (PMI) covers the risk of the loan originator, not the homeowner.

To further the discussion, the main reason that the GOV is bailing out AIG and the rest of this host of clowns (Phoney, Fraudie, Bear, etc ad nauseum..) is simple. WE (the people) are letting them. We have been systematically dumbed down for the last 40 years. How many of you know who your representative is in congress? Who are your senators? Has anyone expressed any opinion the their public serpents recently? By the time this mess is over, you, me, and the next few generations of 'consumers' (remember when it was citizens?), will be on the hook to THE OWNERS OF THE FED for no less than 3 TRILLION dollars. That's conservative.

Here's a good place to start Mish. He has a readable style, and seems to know what the heck he's talking about.

This one is next. Market oracle. You will find opinion and fact culled from the various corners of the MSM.

Finally, there's this guy. I imagine Thomas Jefferson would like him. Karl Denninger

AIG is a symptom. The whole system is corrupt and rotten to the core. This vid is prescient and a classic. I miss George.

Google Video Link

Stock up on staples, and lower your expectations for the next few years.

Peace, Gram.

Sorry the vid link didn't work. Here's the url Carlin Owners

[edit on 9/19/2008 by Gramafaloon]

reply to post by Grey Magic


Yes the Fed did the loaning, not Congress, but that is in reality the Fed's job (running the economy). I'm not disagreeing that this whole thing is a scam and a sham and a mockery of republican government and so on. The bailouts are necessary to keep the show going. I for one believe that more people would suffer more without these bailouts. Do any of these businesses/institutions deserve our money? Absolutely not. Do we have the money to bail them out? Absolutely not. Is there huge moral hazard and a slippery-slope-to-precedent issue here? Absolutely. However, so long as We The People continue to be dependent on the system and its continued functioning, it is in our best interest to keep it going. It also happens to be in the interest of the Fed and the central bankers and the international bankers and the superclass, which is why we need to take logical, well-thought-out steps to get rid of them and remake the system. Refusing to bail out the titans of our economy and thus triggering a collapse is just not the way to do it.

Originally posted by Gramafaloon
A slight correction Crakeur. Mortgage insurance (PMI) covers the risk of the loan originator, not the homeowner.

yes, it covers the lender in the event of a default. That was what I meant to say.

reply to post by Crakeur


You pretty much explained it all correctly..

AIG has a insurer called AIG United Guaranty, which is a PMI insurance coverage for home owners with less then 20% equity..

Anyone who owns a home and is paying PMI, at 20% you legally do not need and are not bound to have PMI insurance..

As far as I know, AIG was a pretty big insurer of PMI, but QBE Insurance Group Ltd. is the second largest in America, and PMI Group is the largest (QBE is slowly taking them over though)..

They really are not doing as bad as you would think, I am not sure if this means the majority of failures are over 20% equity and don't have PMI or they where just good at hedging their losses like a good bank should?

From reading on AIG's economic situation, it would appear insurance had nothing what so ever to do with their losses..

The way Insurance companies make money off Health, Life and Annuities (their biggest markets) is they take the premiums and invest them in markets. The company I used to work for put most of their money into realestate development.. sounds odd, an Insurance company that develops real estate.. however they made billions in profits while others where slowly declining..

Other companies like AIG had horrible, greedy CEO's that decided the best path to riches in the shortest amount of time was to create investment products that invested in highly risky debt trades and securities.. so if you invest in another bank who buys a massive amount of loans that where newly issued and very little equity and they begin defaulting, your investments in the debts is wiped away.. It worked for a while, a bank would issue a 30 year $100,000 loan at 5.5% interest and 0 money down. They would then sell it to another bank for $120,000, who in turn sold it to an investment bank for $160,000. Some mortgages are sold over and over and over.. I know someone who had theirs sold 7 times, and i'm certain she is not the record holder (banks inform you when they sell your loan, so you may know this). I know people who never knew their mortgage was sold, and they sent the check to their original bank, who would forward to the new one.. it's absurd.

But it's how banks make quick and easy profits.

If you invest money in an investment bank to buy a batch of sub-prime loans, and they all begin defaulting, you could loose billions very fast.

This is what AIG did.

Bad investing it would appear.. among other things, no doubt. I have heard their funds are very poor right now and have steep loses, though most of the big funds are low right now.. I saw today on the news that a Money Market fund failed, which I don't think I have ever even heard of. It's a pretty low risk investment lol..

Anyways, hope this helped you out a little OP.

reply to post by Rockpuck


Rock- Indeed. You helped very much. That was a very understandable explanation. Maybe you should be a teacher. Rumor has it that their salaries are gonna get boosted in the near future and those already employed are gonna get a little sweeter deal than those hired after the raise. But I digress... Thanks Rockpuck.
-v

ps- all this floundering of the past 8 years, which high school class years are considered "in power" at this time and theoretically are to blame for our ridiculous predicament (not limited to financial concerns)?