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The government has pumped more than $150 billion into bailing out American International Group (AIG), the big insurance conglomerate that has gambled with derivatives, been charged with cooking its books, and admitted that it would not be a going concern without the bailout funds, among many things. States regulate insurance companies, but none has questioned AIG about its activities. San Diego attorney Michael Aguirre on Friday (June 12) wrote Timothy Geithner, Secretary of the Treasury, asking for information on the federal government's possible attempts to influence state regulators to cool their heels. "It has been learned that officials of the U.S. Treasury and state insurance commissioners are holding and have held periodic teleconference meetings on the subject matter of American International Group," Aguirre wrote, asking for information, such as meetings notes, under the Freedom of Information Act (FOIA). "Not an insurance commissioner has taken action against AIG," says Aguirre. "They are doing the opposite -- reassuring policyholders that everything is OK." The New York insurance commissioner tells people that it is against the law for anyone to tell a policyholder to switch from AIG because is in trouble and may not be able to pay claims.

Also on Friday, Aguirre sued the Treasury Department. Several times during May, Aguirre had requested FOIA documents on AIG, but the Treasury has been unresponsive. The documents have not arrived during the time frames in which the government is theoretically obligated to provide them. The requested documents are for a lawsuit that his firm, Aguirre, Morris & Severson, filed against AIG May 21, charging, among many things, that the company had engaged in fraudulent practices that threaten the welfare of insurance policyholders of California.

Says Aguirre, "What appears to be happening is that the Treasury and Federal Reserve seem to be more interested in concealing their failures to properly regulate than to cause an appropriate reorganization of AIG."

Is it also possible that the government knows that AIG is hopelessly broke and policyholders are at risk, and it doesn't want this knowledge to get out? That is my own question.

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Comments

Visduh June 15, 2009 @ 8 p.m.

For far longer than there has been any real federal regulation of securities, the state of New York took it upon itself to regulate insurance companies, specifically life insurance companies. And, up until now, that seems to have been a long-running success story. If an insurance company was not licensed to do business in New York, well, fuhgeddabouddit! Nobody would bother to try to sell its policies, in any state. (Well, there was a state that proved an exception in the early 20th century, and that was Texas. It had some "populist" laws that prohibited sale of policies from out of state. They did nothing to protect Texans, but rather the opposite.)

If the New York insurance regulatory system does not come down hard, very hard, on AIG, it will lose its credibility as any sort of national standard for insurance companies. This whole thing is amazing. The biggest insurance failure in history does not get the state commissioners on its tail? Something sinister is going on behind the scenes.

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Don Bauder June 15, 2009 @ 10:48 p.m.

Response to post #1: You bet something sinister is going on. It is a huge coverup being orchestrated by the federal government and Federal Reserve. AIG admits that without $150 billion in bailout funds, it would not be a viable enterprise. But if anyone suggests that AIG might not be able to able to pay off its policies, that person is breaking the law. Not AIG. The person who questions the financial viability of this company is breaking the law. The stock market has sent the stock from $72 to $1.50. Should the stock market be thrown in jail? Credit default swaps, the derivatives that threaten to haul down the whole global financial system, are essentially insurance policies that should have been regulated by all 50 states. There should be a national probe into why the states did not insist on regulating them. We already know, of course, about one federal official who wanted this regulation, and got stepped on by Greenspan, Rubin, Sommers and Levitt. Best, Don Bauder

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Visduh June 16, 2009 @ 7:51 a.m.

Don:

Do your blog comments violate the law?

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Don Bauder June 16, 2009 @ 9:12 a.m.

Response to post #3: To steer clear of the law, I usually frame the comments in the form of a question. Aguirre has worded his complaints and his quotes carefully. But nonetheless, it would be just like America if Aguirre and I go to jail, while those who destroyed AIG, dragging down the whole world's financial apparatus, get off with barely a wrist slap, if that. Best, Don Bauder

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Don Bauder June 16, 2009 @ 10:05 p.m.

NOTE: President Obama's proposal for regulatory reform, due tomorrow (June 17) is likely to be a Casper Milquetoast job. The Federal Reserve and Federal Deposit Insurance Corp. will get more regulatory power, but hedge funds will get off easy and derivatives will escape stringent regulation. The San Diego-based Center for Regulatory Reform says that the 1933 Glass-Steagall Act that separated insurance, investment banking and commercial banking functions, and was repealed in the Clinton administration, should be reinstated. Also, hedge funds should be registered as investment companies and derivatives should be regulated by the Commodity Futures Trading Commission. Amen to all those suggestions. Best, Don Bauder

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