AIG Party Time

AIG took top executives on a one week party parade to a luxury spa resort in California. Well not quit. This was a sales incentive trip for independent agents that sell insurance products for American General. Much in the same way that a salesmen who sells ten washing machines in a month may qualify for a manufacturers incentive trip, life insurance companies also incentivise their salesmen that sell insurance products. It takes a year to qualify so the event was planned and well promoted in advance of the recent public troubles. These were not employees except for the hosts but independent agents that have a number of products and companies to choose from when selling insurance. Each will receive a 1099 tax form from AIG for the value of the services and each will in turn need to report their part as income for tax purposes.

I think it was a poor (one of many) decision by the management of the company to continue with the plans for the event. These were however not employees but independent life agents. In the end they should have just canceled the event. It remains to be seen if AG could have sent the savings up as a dividend to the parent company where the toxic CDS's are housed since they are a separately regulated insurance entity. AG is now for sale so if they couldn't have sent to savings to the parent maybe the price (if sold) could have been reduced by $500k, although I think they are asking $18 billion.

Speaking of the bailout, the structure of the AIG "rescue", reminds me of the quote "with friends like these who needs enemies". According to the Treasury, the deal is a two-year loan, not a grant or a gift. It is costing AIG about $26.5 million per day (at the published current level of $61 billion, 12.5% on the borrowed funds and 8.5% on the un-borrowed amount). It should be noted that this money is being paid to the US government and if successful so will be the repayment of principal. If history plays out in a traditional fashion we the people will never see one red cent of the money. It will get stuck in wheels of the government and start leaking all over our congressmen. The earnings work out to about $200 per US household (110 million families earning $0.24 per day for two years at 12% interest). I know its not a lot but heck I'd take it if I were given a choice. Maybe Charlie Rangel (Dem Senator NY) could use his bit to let one of his three NYC rent controlled apartments go to a more needy family.