It’s been alleged in the past that AIG (AIG) is intentionally unwinding its portfolio “badly”, offering its counterparties extremely favourable terms on trades wherever it can.
The assumption has been that the government wants it this way. Since the point of the AIG bailout is to help the company’s counterparties, there’s some logic in handing over as much cash as possible. Why be stingy?
Moe Tkacik at TPMMuckraker offers up a different theory:
…And now we’ve heard from an anonymous executive at AIG who is “familiar” with AIG FP…
Our source says it “is becoming assumed throughout the industry that AIG FP finding new ways to roll over” — which is to say, using bailout money to offer counterparties on its trades generous terms in closing out its contracts with the massive issuer of credit default swaps and other exotic derivatives options. While he did not want to name names or go into detail about any specific transactions, he said we should watch for signs of AIG FP employees being rewarded for their generosity with jobs working for their old counterparties under eyebrow-raising terms — “like if you have a noncompete,” the source explained, “and you go to a competing firm doing something far below you for an extreme salary.”
Would AIG FP traders really trade this way thinking about their next employment?
Well, let’s see. Their unit is getting wound down, so they’ll all basically be out on the street in a year. And they can’t really get paid anymore due to the political backlash. Would you be willing to screw over the taxpayer in this situation to curry favour among the companies that could be hiring you next year? Easy.