By many measures, what follows is long and boring.
But if you are interested in the mechanics of the world and why there isn’t enough money to do good things for the people of Earth, this C-Span video from two days ago is key.
It is the recording of a congressional oversight panel lead by Elizabeth Warren. The matter under investigation is the deal that was struck in the late evening of Sept 16, 2008 to keep a huge insurance company afloat during the most critical moment of what has become known as the Global Financial Crisis.
The company, AIG, was key because they provided insurance to cover many of the strange deals that were put together during the unregulated financial boom of the Bush II era. When it became clear that the boom was mostly based on fantasy bets, AIG, as the insurer of the validity of those fantasies, suddenly became very vulnerable.
It must be understood that is AIG is a huge company with over 100,000 employees in over 100 countries. They insure a massive chunk of all business written by principal financial firms throughout the world. It is reasonable to suppose that if they had failed Sept 16, 2008 essentially all stock markets around the world would have been seriously affected. Many companies and national economies would have crashed to some thing like 1/10th of their previously assumed value. That would have been traumatic event with serious implications for nearly every person living on Earth.
What happened on that fateful night was that representatives of the US Treasury agreed to open an $85 Billion dollar line of credit so AIG could pay-off their clients’ insurance claims. $65 B in real cash money was immediately drawn on the credit line and paid out to AIG’s clients. This generosity from the American people not only saved AIG, but saved all its clients, major firms around the world, who were relying on their insurance to meet their own obligations during a moment of global financial panic.
What is most significant about this story, at least from the perspective of where we are now, is that despite being totally insolvent and having nothing to offer as collateral, the resolution of AIG did not follow the standard moral logic and procedure of a bankruptcy. Normally the owners of an insolvent company lose their equity. The company may go on, but with new owners, or a court-appointed receiver who runs things on behalf of the insolvent company’s creditors, ie the American people.
Instead, in the case of AIG, it’s owners have retained their equity and “profit-making” capacity, and refused even to release the details of the claims it paid. What is perhaps most surprising is that, apparently, all of the insurance claims were paid out at full value despite ample evidence that the actual market value of the insured properties was questionable (these were financial instruments based on the value of unsecured home loans, after all.)
The good news is that the US Treasury will probably get the money back in the next few years. The bad news is that all the big financial companies, all the same people that drove the world economy into the ditch, still have jobs and still control the planet’s money.
Are they grateful to the people of the United States?
Today the conventional wisdom through the global financial community is that there is too much public sector spending. We need to cut back all social programs. No support for people who lost work or houses or businesses during the panic. No support for schools and local governments… etc, etc, etc
“Hey, thanks for the loaner, Bros! Got a good feeling this time! Gonna beat that casino for sure.”
This video reveals the story and significance of crucial decisions around the AIG deal in detail. Four commission members, each a fascinating personality (especially the brilliant Professor Warren), interrogate several financial operatives who helped make the deal happen, including the amiable fellow who held the position of CEO at AIG from May to September 2008.
Everyone who cares about the political and social conditions of contemporary life on Earth will gain valuable insight by attending to this video document.
It opens with a brief, beautiful statement by Elizabeth Warren, clarifying the issues at hand.