The financial crisis in the US financial markets continues to spin out of control. In the latest, and largest government bailout ever for the Federal Reserve, the FED came to the rescue of American International Group Inc.(AIG) with an $85 billion dollars of taxpayer money/ In exchange the government will get a 79.9 percent stake in one of the world’s largest insurers as well as the right to remove senior management.
AIG shares sank $1.54, or 41 percent, to $2.21 in afternoon trading Wednesday. They traded as high as $70.13 in the past year. Clearly wiping-out hundreds of billions of investors money. This can be particularly devastating for those workers of AIG that had large amounts of company stock.
“The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times. Hearing of these plans, you have to stop to catch your breath. But upon reflection, the alternatives are much worse,” said Sen. Charles Schumer, D-N.Y.
In a statement late Tuesday, AIG’s board of directors said the loan will protect all AIG policy holders, address concerns of rating agencies and buy the company time to sell off assets.
Hank Greenberg, the key figure credited with building AIG into the world power-house, then replaced as CEO three years ago as part of an accounting probe; when interviewed today stated.
“No, I think it’s an unfair appraisal,” said Greenberg, “You know, there are many things that contributed to this unfortunate episode. after I left the company, all the risk management procedures that we had in place were obviously dismantled. I can’t explain that. There’s a new board of directors. One should be asking that board of directors what they did and why.”
Greenberg said he has lost “my entire net worth. Literally, my entire net worth.’
“Worked 40 years building the greatest insurance company in history, one that everyone in the world envied who was in this industry. I’ll get by, but my heart goes out for the thousands and thousands of employees and their families who shareholders and not only in the United States but worldwide. That is a tragedy,” he said.
While the parent holding company, is based in New York, it is really a large collection of individual insurance companies licensed state by state; each monitored by state insurance regulators. AIG, despite financial issues; states its insurance companies were solvent and have the capability to pay claims. Anyone covered by AIG insurance companies can expect their claims to be paid as usual, said Scott Kipper, the Insurance Division administrator
“There is a procedure for insolvencies, and it involves trying to settle the liabilities of the company to the maximum extent possible. To the extent they can’t be met, there are guaranty funds in every state that cover certain types of insurance,” said Robert Hartwig, president of the Insurance Information Institute, a nonprofit industry group.
The State Guaranty Funds are funded by payments made from all insurance companies that write policies in that state, as long as they are ADMITTED Markets. Insurance companies that are non-ADMITTED do not pay into the fund, and their policy holders are not protected.
Urban Insurance Agency does not place business with NON_ ADMITTED companies.
AIG scrambled Monday to reassure worried insurance clients. “Insurance policies written by AIG companies are direct obligations of our regulated insurance companies around the world. These companies are well capitalized and meet or exceed local regulatory capital requirements,” said Peter Tulupman, a company spokesman in an emailed statement.