Saturday, April 4, 2009

AIG's Fraud

It has been argued thus far that American International Group made poor investing decisions that led to what is essentially the insurance giant's collapse, and subsequent bail outs by US taxpayers, to the tune of some 200 billion dollars with more on the way. The theory has been that AIG was too big to fail, despite the credit derivatives swaps written by AIG's investment office in London led by one Joseph Cassano. Throughout the turmoil of the past six months, with Lehman Brothers collapsing along with several bank take overs and the essential nationalization of GM and the hoped-for sale of Chrysler to FIAT, AIG was viewed as the purveyor of poor decisions that needed to be propped up too. Reading an article on AIG's problems here http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=351 for ces one to a very different conclusion.
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The financial column called Instituional Risk Analytics or IRA, suggests that AIG has been practicing a form of fraud that pre-dates the creation and expansion of credit defaults swaps that have been the proximate cause of the economic collapse of the world's financial systems. The suggestion is that AIG has been helping corporations to cook their financial books by issuing phony re-insurance contracts. The idea was to appear to absorb ricks from companies while secretly voiding the re-insurance contracts with side letters, thus giving the companies the opportunity to write off burdensome obligations in what would have been felony evasions.
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It further seems the FBI and fraud investigators started to twig to these so-called side letters possibly around 2002-2003 and that was when Cassano and his mob started to work on credit derivative swaps, a form of selling reinsurance risk that in the end imploded wrecking all business credit. Furthermore Elliott Spitzer's name comes up in connection with the investigation and the suggestion has to float through one's mind that his sexual entrapment with a prostitute must have been engineered to bring about his downfall and interrupt the investigation.
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Finally IRA says French president Nicolas Sarkozy may have calmed down markedly at the recent G20 meeting (of 19 nations plus the European Union) as a consequence of his realising that without the US Government propping up AIG French re-insurer Societe Generale would have imploded also. That they say is why German Chancellor Angela Merkel continued to speak up- her country has no major exposure to AIG's fraud. However the wide reach of AIG's practices and the fraud involved have freaked out the US Government, ex-Goldman Sachs executives, and to try to cover up the extent of AIG's treacherous dealings they now find themselves obliged to try to keep the zombie company alive.
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This path of action is unsustainable according to IRA and more financial time bombs are expected. Just the sort of the thing that could blow apart the meet-and-greet success of the G20. That, an oil price expansion, a North Koren missile launch. Who knows what could set off the next round of shouting around the world. Cold comfort for the millions of newly unemployed.

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