President Clinton passed regulations that reformed the essence of the way banks can do business (Lal, 2010). These changes allowed banks to use their depositors money to invest in risky investments; also known as speculation. They had a range of new products to try to hedge their risks. One of these products was known as a derivative and AIG was the leader of the derivative business. Therefore, there was a systematic failure in the free market economy and AIG was at the centre. It is easy to put all the blame on AIG, however it should be shared equally with the regulators and the rules of the free market.
From the CEO's perspective, if I was the CEO, I would not have given myself the bonus; at least until all of the public's money was repaid. Obviously the CEO has a self-serving bias towards their own compensation and it is…...
mlaWorks Cited
Lal, D. (2010). The Great Crash of 2008. Cato Journal, 30(2), 265-277.
Lopes, J. (2010). Re-enactment of the Glass -- Steagall Act 1933: is this a step in the right direction for global financial reform? Law & Financial Markets Review, 4(4), 428-432.
, 2008). There are two formats of insurance coverage that AIG specializes in:
1. Auto Insurance
2. Travel Insurance
Auto insurance
The primary profits and insurance coverage offered by AIG for auto insurance services were through its subsidiary by the name of AIG Direct (can be accessed on aigdirect.com). The service package that they offered their clients included insurance for privately owned vehicles, motor bikes, commercially-owned vehicles and as well as the recreational transport (Schneiderman et al., 2008).
Some of the major subsidiaries of included the complete subsidization of the online auto insurance specialist called the 21st Century Insurance. This takeover took place in the year 2007 and cost AIG $749 million at purchase. This subsidiary proved to be the most beneficial move for AIG in the year 2008 where they experience the highest record of losses with the recession. They directed all of their business dealings towards the 21st Century Insurance. The following year,…...
mlaBibliography
Gretchen, M. (2008). "Behind Insurer's Crisis, Blind Eye to a Web of Risk." NY Times. Accessed on October 28th, 2010 from http://www.nytimes.com/2008/09/28/business/28melt.html
Mark P. (2008). "Goldman, Merrill Collect Billions After Fed's AIG Bailout Loans." Bloomberg News
Marsh, B. (2008). "A Tally of Federal Rescues." New York Times. Accessed on October 28th, 2010 from http://www.nytimes.com/imagepages/2008/09/28/weekinreview/20080928_MARSH_GRFK.html
New York Times. (2008a). "An Insurance Giant, Brought Down." Accessed on October 28th, 2010 from Retrieved 2008-09-27http://www.nytimes.com/imagepages/2008/09/27/business/20080928_MELT_GRAPHIC.html .
Of course, the idea of what constitutes risk is somewhat problematic, as it could be argued that the definition of risk varies from investor to investor and company to company. Strictly speaking, the accounting regulations of the Federal Accounting Standards Board call any action without a significant amount of risk a loan, without any clear definition of what significant means. In this case, however, the risk does seem to be fairly negligible, and part of a consistent pattern of fraud on the part of AIG in terms of its income. It consistently manipulated its revenue to present a more pleasing financial picture to current and potential investors.
The collusion between insurance companies and large corporations through fictive investments that are really secure loans is common. Take the case of another AIG scam, selling insurance to the Brightpoint Inc. cellular phone company, after the cell phone company had already incurred losses. The…...
mlaWorks Cited
Kay, Joseph. (24 March 2005.) "Top insurance company mired in allegations of accounting fraud." World Socialist Web. Retrieved 29 Jan 2008 at http://www.wsws.org/articles/2005/mar2005/aig-m24.shtml
AIG Case Study
What types of work behaviors did AIG intend to encourage through its retention bonus plan?
AIG was attempting to encourage efficiency. Because of failures in its Financial Products unit, it intended to shut this area of the company down. Arguably, workers within the unit would only work in a proactive manner if they received bonuses to 'work themselves out of a job.' However, there was no clear relationship between performance and pay: even during the height of the toxic real estate debacle, employees were still given bonuses.
Using the model of the individual-organizational exchange relationship, explain the relationship that employees of AIG's Financial Products unit believed they had with the company. How was this exchange relationship violated?
Employees at the company believed that if they performed the actions they were bidden to perform, they would be rewarded. Under the exchange model, workers are paid for performing work and meeting goals, not…...
mlaReferences
Straker, David. (2012). Path-goal leadership. Retrieved:
http://changingminds.org/disciplines/leadership/styles/path_goal_leadership.htm
Taleb, N. (2011). End bonuses for bankers. The New York Times. Retrieved:
http://www.nytimes.com/2011/11/08/opinion/end-bonuses-for-bankers.html?_r=0
AIG Financial Bailout:
American International Group (AIG) Inc. is one of the biggest insurers worldwide that was bailed out by the U.S. government in 2008. The American government took control of this company in deal worth $85 billion that reflected the intensity of its concern regarding the threat a collapse could pose to the financial system. As part of the deal, the government effectively obtained a 79.9% stake at the firm in warrants known as equity participation notes. The emergency loan from the Fed was spread out within a period of two years with an interest rate of Libor and 8.5%.
The security of the emergency loan was the company's assets that included the profitable insurance businesses of AIG. While this security provided some protection to the Fed even with the ongoing sinking of the markets, the taxpayers were to reap huge profits through the equity stake if the company rebounded. On…...
mlaReferences:
Karnitschnig et. al. (2008, September 16). U.S. To Take Over AIG in $85 Billion Bailout: Central
Banks Inject Cash as Credit Dries Up. Retrieved May 9, 2012, from http://online.wsj.com/article/SB122156561931242905.html
Sarjanuddin & Mamat, M.I. (2009). Market Failure and Government Intervention. Retrieved May 9, 2012, from http://www.scribd.com/doc/47082775/Market-Failure-and-Government-Intervention
The Ethics of AIG’s Commission Sales
1
American International Group (AIG) had been a big player in the financial crisis of 2007-2009. The company had been selling credit default swaps and making a commission on the sales (Brooks & Dunn, 2018). AIG had not expected the market to turn south in subprime lending as quickly and devastatingly as it did. The result was disastrous for the global economy as many were left holding toxic debt.
The credit default swaps (CDSs) were like insurance on the bundles of home loans sold to investors. Investors would buy the mortgages for the fixed return and then savvy investors would buy insurance on the investments (the CDSs) in case the mortgages were not repaid. The bundles of loans were supposedly mortgages of home owners who were unlikely to default, according to their AAA-rating. However, many of the bundles consisted of tranches that were full of sub-prime loans…...
mlaReferences
Brooks, L. & Dunn, P. (2018). Business & Professional Ethics for Directors, Executives & Accountants. Cengage.Huston, J. H., & Spencer, R. W. (2018). Quantitative easing and asset bubbles. Applied Economics Letters, 25(6), 369-374.Lewis, M. (2010). The Big Short. NY: W. W. Norton.StatelessLiberty. (2013). Stagflation was not caused by Cost-Push factors—Milton Friedman. Retrieved from Taibbi, M. (2010). Griftopia. New York, NY: Spiegel & Grau.https://www.youtube.com/watch?v=qQjAbHR40nk
AIG and the Impact of the "Insurance" Gambit
In the marketplace leading up to the 2008 economic crisis, lenders, ratings agencies and insurance companies were working together to create wealth from bad debts (loans given to homeowners unlikely to pay). These debts most likely to default were bundled and sold in tranches to investors, who believed or at least allowed themselves to think (or did not even care to question) that they were getting AAA-rated bonds (Lewis). hen it turned out that banks (the biggest buyers of these "time-bomb" bundles) were over-exposed and that the demand for these bundles was suddenly drying up as investors realized that they were holding junk bonds rather than bonds likely to yield good fruit, the price of insurance on the bundles skyrocketed. Banks began dumping the bundles, and overnight, as in the case of Lehman Brothers and others, banks around the world saw themselves threatened…...
mlaWorks Cited
Greider, William. "The AIG Bailout Scandal." The Nation. 6 Aug 2010. Web. 30 Mar
2015.
Lewis, Michael. The Big Short. NY W.W. Norton, 2010. Print.
Taibbi, Matt. Griftopia. New York, NY: Spiegel & Grau, 2010. Print.
Jet again this is one of the fundamental lessons of ethics, and that is when the balance of advantage leans too far to one side, unethical advantage occurs (Josephson, 2010). This was a tough lesson to learn for AIG as it was the catalyst of salary limits on the entire investment and financial services industry.
Conclusion
AIG shows what happens when a company loses track of their core business of service and delivering value to customers. The unbalanced nature of AIG's ethical decision making nearly bankrupt the company yet when seen from a positive standpoint, they are an excellent example of why ethics needs to always be based on balanced, equitable decision making.
eferences
Bradford, M., Taylor, E., & Brazel, J.. (2010). Beyond Compliance: The Value of SOX. Strategic Finance, 91(11), 48-53.
Michael . Crittenden, & John D. McKinnon. (2010, January 26). U.S. Opens Probe Into AIG's Payout to Partners. Wall Street Journal (Eastern…...
mlaReferences
Bradford, M., Taylor, E., & Brazel, J.. (2010). Beyond Compliance: The Value of SOX. Strategic Finance, 91(11), 48-53.
Michael R. Crittenden, & John D. McKinnon. (2010, January 26). U.S. Opens Probe Into AIG's Payout to Partners. Wall Street Journal (Eastern Edition), p. C.1.
Amir Efrati, & Liam Pleven. (2008, June 6). SEC, Justice Scrutinize AIG on Swaps Accounting. Wall Street Journal (Eastern Edition), p. C.1.
Jakobson, L.. (2009, July). AIG Effect's Full Circle. Incentive, 183(7), 42-43.
Public Relations Challenge
AIG Asks for ail-Out While Hosting Executives at a golf outing at the St. Regis Hotel in Laguna Niguel, California
etween September 22nd and 30th, 2008 American International Group (AIG) was in the midst of presenting their case for a massive bailout of $85M to the U.S. Congress. Coincidentally the AIG independent insurance agent marketing and sales organizations were hosting a week-long sales meeting at the five-star St. Regis Hotel in Laguna Niguel, California. The cost of the event was $443,300 with such extravagances as rounds of golf well over $200 each, pedicures and extensive spa treatments (Weisman, 2007). The U.S. Congress granted the AIG executives the $85M bail-out believing it was essential for stabilizing the fragile economic condition of the country at that time (Jakobson, 2009). Upon hearing they had been lied to by the AIG executives who knew of the St. Regis event and massive spending, the…...
mlaBibliography
Bush, M. (2008). Bailed-out AIG catches flak for lavish event. Advertising Age, 79(38), 6.
Jakobson, L. (2009). AIG effect's full circle. Incentive, 183(7), 42-43.
Weisman, R. (2007, Apr 05). Academics' 'PR' work raises eyebrows. McClatchy - Tribune Business News.
The second recommendation I would make with respect to external communications is that Liddy adopt more stringent measures than the government has insisted upon with respect to spending controls. The government has set out some measures, but AIG should be tougher than that. This would demonstrate a sense of culpability on the part of the company for the fact that the situation it is in is of its own making. A major component of the public's offense is that it feels cheated in the deal. Taxpayers, many of whom are feeling the sting of economic hardship themselves, are insulted that they have been called upon to bailout a company that then pays six and seven-figure bonuses to its executives. Most of the people contributing tax dollars to those bonuses will never see money like that in their lives. Liddy has the luxurious advantage of not being directly responsible for the…...
mlaWorks Cited:
Karnitschnig, Matthew; Solomon, Deborah; Pleven, Liam & Hilsenrath, Jon E. (2008). U.S. To Take over AIG in $85 Billion Bailout. Wall Street Journal. Retrieved April 25, 2009 from http://online.wsj.com/article/SB122156561931242905.html
No author. (2008). Cheque Mate. The Economist. Retrieved April 25, 2009 from http://www.economist.com/finance/displaystory.cfm?story_id=12607251
Tuggle, Elizabeth. (2009). AIG's Bonus Payout Just the Latest Source of Outrage. Fox News. Retrieved April 25, 2009 from -- million-bonuses-employees/http://www.foxbusiness.com/story/markets/industries/government/aig-hearing
Kuykendall, Lavonne & Murti, Bhattiprolu. (2009). AIG Gets Aid, Minus Bonus Pay. Wall Street Journal. Retrieved April 25, 2009 from http://online.wsj.com/article/SB124022481818534555.html
American International Group Inc. (AIG) is a world leader in insurance as well as, financial services that serves more than 70 million clients across the world. The company for many years has managed to remain confident in their strategy to leverage their financial strength and global franchise that continue to enable growth in both emerging and developing markets. The vision of the company is to be the world's first choice provider of insurance and financial services, in every corner of the world, whereas its mission is achieved through innovation, world citizenship, partnership and integrity (AIG, 2007).
AIG Kenya Insurance Co. Ltd. has custom made products and serves commercial, institutional, and individual customers through widespread international property-casualty networks of its kind. In addition, AIG companies are principal providers of life insurance and retirement services in the United States. Its products and services are divided into Individual products and Business products.
For instance, individual…...
mlaReferences
AIG, (2007). AIG 2007 Annual Report. Retrieved September 24, 2014 from http://www.ezodproxy.com/aig/2008/ar2007/images/AIG_AR2007.pdf
American International Group, (2014). Asset Management. Retrieved September 24, 2014 from http://www.aig.com/asset-management_3171_441984.html
Buhayar N., (2013). AIG Sets Bonus Plan to Reward Executives After Repaying Bailout. Retrieved September 24, 2014 from http://www.bloomberg.com/news/2013-03-27/aig-sets-bonus-plan-to-reward-executives-after-repaying-bailout.html
Glassdoor, (2014). AIG Salaries. Retrieved September 24, 2014 from http://www.glassdoor.com/Salary/AIG-Salaries-E40.htm
Conclusion
If AIG would not have been helped by the Federal eserve, it is more
than obvious that the financial group would have declared bankruptcy.
Although the bailout reached an enormous sum, the action was justified.
Given the current market conditions, an eventual collapse of AIG would
contribute even more to the fragility of the financial market. Also, it
would have led to a reduction of public wealth, and it would have reduced
economic performance.
The opinion of U.S. taxpayers is that the AIG bailout was not
justified. For them, it did not seem fair that they should pay for the
mistakes made by financial corporations' CEOs and by the defective policies
and strategies practiced by financial groups.
There are two sides to this issue, one opposing the other. U.S.
citizens have strongly declared themselves against the bailout. Their
pressure determined the country's officials to reject financial saving
plans initially.
However, the efforts of these taxpayers had to be sacrificed, and AIG
has to be helped to…...
mlaReference list:
1. Chronology: Financial Crisis Spreads from U.S. to WorldMarkets (2008). Deutsche Welle. Retrieved November 7, 2008from http:www.dw-world.dedwarticle0,2144,3689713,00.html.2. Subprime mortgage crisis (2008). Wikipedia, the free
encyclopedia. Retrieved November 7, 2008 fromhttp:en.wikipedia.orgwikiSubprimemortgagecrisis.3. DiMartino, D. & Duca, J. V. (2007). The Rise and Fall of
Aspiring Intern
Current PAC-10 Consulting Management
REF.: The AIG Rescue
As the global financial crisis began to unveil, all of the financial institutions with positions on the market that exposed them to the crash began to feel under pressure. AIG was one such company, where a combination of credit swaps and other esoteric financial instruments weakened its position and its capacity to remain competitive on the market in the face of the financial losses such instruments generated. As of the that point, the U.S. Administration, usually in the form of the Federal Reserve or the Treasury Department, intervened with significant bailouts for many of these companies, including AIG, which received $85 billion in exchange for a 79.9% stake in the company
This memo will aim to briefly analyze the pros and cons of the governmental intervention, briefly analyze the future implications of this intervention and determine whether or not this was a correct action…...
mlaBibliography
1. Luhby, Tami. Fed in AIG rescue - $85B loan. CNN Money. September 2008. On the Internet at Last retrieved on November 26, 2009http://money.cnn.com/2008/09/16/news/companies/AIG/index.htm .
2. AIG Bailout. On the Internet at Last retrieved on November 26, 2009http://www.homebiz.bukiki.com/aig-bailout/.
3. Solomon, Deborah. AIG's Rescue Bedevils U.S. The Wall Street Journal. November 2009. On the Internet at Last retrieved on November 26, 2009http://online.wsj.com/article/SB10001424052748703819904574554241356640428.html?mod=WSJ_hpp_LEFTWhatsNewsCollection .
Luhby, Tami. Fed in AIG rescue - $85B loan. CNN Money. September 2008. On the Internet at
Many subprime mortgages were made with little documentation of income or ability to repay, or other elements that typically safeguard loans of all types and mortgages especially. There have even been cases of widespread fraud, where documents were falsified in order to approve loans. The reason many lenders were so eager to make these bad loans is that they weren't ultimately going to be responsible for them -- the loans were bundled into groups and sold as "mortgage backed securities," so instead of dealing with many individual loans worth an average of a few hundred thousand dollars, banks and other institutions were dealing with bundled groups of these bad loans worth millions of dollars apiece. Companies like AIG made money in the short-term by providing insurance policies for these mortgage backed securities, as well. Eventually, however, people with loans they couldn't really afford began to default, either because they simply…...
Japanese-Americans in the West Coast lived peacefully before President Roosevelt issued the Executive Order 9066 in February 1942 that condemned them to misery in internment camps in the deserts of California. Those who owned property had to sell them. Some had to give up their belongings. The Japanese-Americans could not wage any form of resistance because this would be suppressed by brute military force. Nobody would be foolhardy enough to contemplate that. The 20-year-olds were adversely affected despite the fact that some of them were later allowed to go to college, work in factories, and serve in the United States military. Life in the camps was heart-wrenching.
The young Japanese-Americans conscripted into the military had divided loyalty especially after the Japanese attacked Pearl Harbour. America was their country of birth and Japan was the country of their parents and ancestors. The anti-Japanese sentiments that were aired after the Pearl Harbour attack…...
As health care’s share of gross domestic product (GDP) grows, people are struggling with how to estimate the value of the health care industry in the economy. While it might seem like a straightforward answer, simply looking at the total amount paid for healthcare in proportion to the total GDP, that valuation would be a gross oversimplification. Generally, GDP is viewed as a proxy for standard of living, but in the United States standard of living might actually drop for many people as the percentage of GDP attributable to healthcare grows. It is important to keep in....
Cyberbullying, which is defined as bullying that takes place over digital devices, is both similar to and different from traditional bullying. In addition, it can take place in isolation or in combination with traditional forms of bullying. It can involve a wide range of behaviors, including posing or sharing negative, harmful, mean, false, embarrassing, or humiliating information about the target. It can also involve harassing behaviors. Sometimes cyberbullying behaviors are criminal, and sometimes they are not. Cyberbullying can occur on social media, in emails, by text or DM, in SMS, in games, in forums, and in a....
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