George Graham

What on Earth is Really Going on at AIG? I Smell a Rat!

What is it about AIG (American International Group) that makes it so special to the Bush Administration? I know it’s a huge insurance company and I guess a lot of people will lose a lot of money if it crashes. But that’s not unique. In fact, there’s an even more frightening collapse looming. I’m talking about the auto industry crisis. If the car makers go under, think of the jobs America will lose! But so far, the Bush Administration is sitting on its hands. When AIG whistles, however, Uncle Sam comes running, dragging bags of loot behind him.AIG building

Earlier this year the Federal Reserve Board coughed up a total of $123 billion in loans to AIG (the company’s Manhattan building is shown at right). The insurance giant later got another $20.9 billion through the Fed’s program to buy short-term debt. That seems like a lot of cash to me, but it wasn’t enough for AIG. Now, the company is getting $40 billion more – directly from the government – in return for preferred shares.

The deal is complicated enough to make my head spin. I guess that keeps us po’ folks from finding out exactly what’s going on. Here are some of the details: The Federal Reserve is reducing an $85 billion loan it gave AIG to $60 billion, and replacing a separate $37.8 billion loan with a $52 billion aid package.  Why? How would I know? Nobody ever reduced or forgave a loan for me. How about you? I bet a lot of struggling Americans would appreciate it if the government reduced or forgave those student loans they got saddled with.

But wait, there’s more. The new package reduces the interest rate AIG will pay and extends the loan term to five years from two. Is that a sweetheart deal or what? And it gets even sweeter. Remember those “toxic” mortgage-backed securities that turned out to be virtually worthless? The Fed is going to buy them from AIG.ritz carlton

You may recall that AIG executives pampered themselves with a $444,000 California retreat (at the Ritz Carlton at Half Moon Bay, left) including spa treatments, banquets, and golf outings immediately after getting the first bail-out package. And AIG’s top brass figured they could use even more rewards for their stellar performance. They later spent another $86,000 on a luxurious English hunting trip. Yet, now that they’ve spent themselves into more trouble, the government is only too willing to come up with another bail-out package.

Does this stuff make you suspicious? Do you think some hanky-panky might be going on? I sure do! You might think that a big publicly traded company like AIG would be oh-so-respectable, that no breath of scandal would sully its good name. But that may have been true when the world was young – not today. Many of the biggest and most successful companies – and government agencies – have been infiltrated by people with scary associations and shameful track records. The AIG scandal is so murky that you can’t tell the good guys from the bad guys. But it’s easy to see there are some really, really bad guys involved.

greenbergThe cast includes legendary tycoon Maurice “Hank” Greenberg (photo at left), the 83-year-old son of a taxi driver who built AIG into an $800 billion company, and Eliot Spitzer, the disgraced New York state attorney. As AIG boss, Greenberg was one of the richest and most powerful men in the world.  U.S. Presidents, foreign heads of state, and intelligence chiefs sought his counsel. His foundations dispensed hundreds of millions of dollars each year to charities. And he was pater familias of a powerful clan. Sons, Jeffrey and Evan, and a cousin, Alan, headed various other huge financial companies, including Bear Sterns, which includes among its customers the Bush and Cheney families. When Spitzer started digging around in 2005 , Greenberg quit (or was kicked out) abruptly. But he had an ace in the hole – control of an obscure Bermuda-based holding company named Starr. That company, also known as SICO, was used to dole out AIG stock to its top managers when they retired. The AIG stock was acquired during a complicated corporate reorganization in 1970. By 2005, this block had grown to 310 million shares, or 12 per cent of AIG. That meant Greenberg could personally lay claim to a huge chunk of AIG’s assets. The claim ended up in court. And that was just one of a slew of lawsuits that resulted from the scandal. They would not be settled anytime soon. Greenberg is still facing government and private litigation, according to Fortune Magazine.

spitzerSpitzer (with wife in photo at right) initiated criminal proceedings against Greenberg but dropped the charges and instead filed a civil lawsuit against AIG, Greenberg, and former chief financial officer Howard I. Smith. The suit accused them of manipulating the company’s financial reporting in order to deceive regulators and investors. Various pension funds also joined the fray, charging that their members had been defrauded. The Wall Street Journal reported that AIG was expected to pay more than $1 billion to settle civil-fraud investigations by state and federal authorities. But I don’t know how many billions went to the other claimants.

It was all down hill for AIG after that. And when the housing bubble burst, the company was caught with reams of worthless securities based on mortgages that homeowners were no longer paying. That was when the government stepped in to prop up the wobbly insurance giant.

Meanwhile, Spitzer had his own personal catastrophe. The attorney general had toppled the Gambino Crime Family in 1992, and his targets included everyone from big Wall Street investment banks and the $7.5 trillion mutual fund industry to polluting power plants and supermarket chains that underpaid delivery workers. He rode this crusading reputation to become New York state’s governor in 2006.

kristenBut on March 10, 2008, The New York Times reported that Spitzer had patronized a high class prostitution service called Emperors Club VIP.  You probably remember the scandal: Spitzer allegedly paid $4,300 in cash to a call girl, named “Kristen,” (photo at left) described as a “petite, very pretty brunette, 5 feet 5 inches,” and “American.” Spitzer resigned in disgrace. Some observers suspect he was the victim of a trap set by enemies.

Why am I bringing this up? Because there are some on the internet who say Spitzer was really an agent of organized crime and that he was engaged in a vendetta against competing crime “families.” Other articles on the web link the Greenbergs and AIG to the New York mob complex. One conspiracy buff even suggests that Spitzer and AIG were in cahoots and the lawsuit he brought against the company was intended as a diversion. I know this sounds preposterous, but – hey – we’re talking about New York. These things could happen there. All I know is that AIG gets suspiciously special treatment from our government.

About the author


I am a Jamaican-born writer who has lived and worked in Canada and the United States. I live in Lakeland, Florida with my wife, Sandra, our three cats and two dogs. I like to play golf and enjoy our garden, even though it's a lot of work. Since retiring from newspaper reporting I've written a few books. I also write a monthly column for