AIG And The Missing $123 BILLION

Oh, AIG, the story of your collapse is a riddle wrapped in an enigma dipped in a reporter’s dream. Today, The New York Times tackles the case of your rapidly-disappearing bailout money. What’s going on? You said you’d stop with the luxury retreats and extravagant bonuses.

The possible explanation is actually a lot less scandalous. Analysts think AIG may have lost more than it admitted when it asked for its first bailout, thus causing the firm to use so many of its federal funds so fast.

NY Times: The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.

But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.

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