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AIG - Coggle Diagram
AIG
The detail of the accounting fraud
Over a billion US dollars worth of errors in accounting transactions
A supposedly $500 million transaction with Berkshire Hathaway that drastically inflated AIG's revenues. This error involved reinsurance transactions that not only spreading out risk, but also “managing earnings” for accounting purposes
A culmination in a $3.9 billion restatement in 2005 that included numerous different types of transactions, including allegations relating to a $500 million no-risk fraudulent reinsurance transaction that AIG entered into with General Reinsurance Corp. in order to artificially boost AIG's reported claims reserves
Tens of millions of dollars in undisclosed contingent commissions to insurance brokers and participated in a bid-rigging scheme with insurance brokers and certain insurance companies in order to divide the market for certain types of insurance
Straightforward stock price manipulation, in which company executives ordered company traders to inflate AIG stock price
Reaped a fortune selling derivative contracts based on mortgage-backed securities, hedging devices that made investors feel safe holding these assets, during the Housing Bubble
The penalties and consequences
In 2012, the U.S. Department of the Treasury sold all of its remaining shares of American International Group, Inc. (AIG) common stock at $32.50 per share in an underwritten public offering. The aggregate proceeds to Treasury from the common stock offering are expected to total approximately $7.6 billion.
In November 2008, a complex swap, known as “Maiden Lane,” in which the government paid off counter parties, acquired the remaining derivative contracts and extinguished them. The bankers again collected roughly full value on assets that were then selling in financial markets for less than 50 cents on the dollar.
On October 8, 2008, the Federal Reserve Bank of New York agreed to lend $37.8 billion to AIG subsidiaries in exchange for fixed-income securities.
On September 16, 2008, the Federal Reserve provided an $85 billion two-year loan to AIG to prevent its bankruptcy and further stress on the global economy
In return, the Fed took ownership of 79.9 percent of AIG's equity to replace management, and have veto power over all important decisions, including asset sales and payment of dividends.
In 2008, Goldman and the JPMorgan bank collaborated with the Fed to organize a private-sector consortium of major lenders to provide the emergency liquidity loans that would keep AIG afloat until things settled down.
Live links to the sources
https://www.treasury.gov/press-center/press-releases/Pages/tg1796.aspx
https://www.thebalance.com/aig-bailout-cost-timeline-bonuses-causes-effects-3305693
https://justchinajade.files.wordpress.com/2016/07/prcasesbigcase.pdf
https://insight.kellogg.northwestern.edu/article/what-went-wrong-at-aig
https://www.thenation.com/article/archive/aig-bailout-scandal/
The major players
Federal Reserve
American International Group (AIG)
JPMorgan Chase and Goldman Sachs
General Reinsurance Corp.(Gen Re))