AIG (AIG): Stupidity's Special Child

AIG (AIG) has made the assumption that other firms like Merrill Lynch (MER) and Citigroup (C) did. Changing CEOs will somehow alter the course of a systemic problem which curses the financial industry.The mortgage-related paper crisis touched every banking and brokerage firm because each and every one made the same basic mistakes in analyzing the markets.

AIG was particularly crass in its CEO change. It took the company’s chairman, on whose watch many of the investment mistakes were made, and put him into the top job. AIG did not even feign an attempt to find a high-powered outsider who was not part of the old regime.

AIG reported another quarter of remarkably poor earnings. The firm had a $5.36 billion loss. The quarterly net loss included $5.57 billion of unrealized market valuation losses on AIG’s super senior credit default swap portfolio. It also included $6.08 billion of net realized capital losses from its investment portfolio.

AIG was and is primarily and insurance company. It is not unfair to ask on what basis the firm decided to pile money into selling guarantees on CDOs using credit-default swaps. Of course, the answer is that AIG thought it would make a lot of money.

Current AIG chief Robert B. Willumstad joined the company’s board in early 2006. At one point not long ago, he was Chairman at Global Investment Management at Citigroup.

Where was he when the problems began?

Douglas A. McIntyre