On the AIG Bailover (Takeout?)
Carolyn Elefant links to some lawbloggers questioning whether the Fed had the legal authority to pull off a bailout that is, in effect, a takeover rather than just a loan. Apparently there’s some question as to how much federal law allows the Fed to do. To the extent that it doesn’t clearly preempt state law, there could be issues under state law, as well. Taking over even a 10% interest in an insurance company, let alone a majority stake, generally requires going through a lengthy approval process with insurance regulators in multiple states. In theory, I suppose it is possible that the Fed called all applicable regulators (not only in New York, but in every other state in which at least one A.I.G. subsidiary is either domiciled or commercially domiciled) in the middle of the night to gain approval for the deal in record time. In practice, don’t bet on it.
Full disclosure: I work for an insurance company that competes with A.I.G. I speak for myself, not my company or anyone else.
Fuller disclosure: I now own A.I.G., and I’ll bet you do, too.
UPDATE: Meanwhile, Sir Hopenchange has strong opinions on a company whose name he can’t even get right. One side of me says “no big whoop,” if I weren’t an insurance geek I probably would have assumed the “I” stood for insurance, too. The other says roll with it, let’s milk every dumb think the Obamessiah says for all it’s worth. If this bozo gets elected, who will taxpayers end up bailing out next? Geeko? All57states? ShitiBank? Toilet and Douche? Arton, Barton, Parton and Wellsfargo? Countryside? Or perhaps their sister corporation, and the world’s most undermotivated subprime lender, Countywide?
September 17th, 2008 at 8:46 pm
It’s an interesting question in theory for lawbloggers and like-minded insurance geeks like us, but practically meaningless when all regulatory parties want/need it to happen quickly. The Fed was clearly working closely with Dinallo every step of the way. The NAIC has already set up a task force to oversee/approve dispensation of the insurance assets.
Speaking of competing w/AIG, did you see the full-page ad by ACE in the WSJ today - right next to the page where the lead AIG article jumped. Pointed right at their customers - just brilliant.
September 17th, 2008 at 8:56 pm
Funny that one of the linked lawyers talks about where to draw the line for bailouts and includes the auto industry in his musings. Ever heard of Chrysler, dude?
September 17th, 2008 at 9:21 pm
Right, but as you know the NAIC has no regulatory authority. New York does, obviously, as do Lord-knows-how-many other states. Were they really all on board? Or does the Federal Reserve Act allow the Fed to ignore state laws entirely (even insurance laws, notwithstanding McCarran-Ferguson)?
September 18th, 2008 at 12:19 am
You forgot Dewey, Cheatem, and Howe - the law firm that needs bailing out after a failed class action suit against anybody at all.
September 18th, 2008 at 9:19 am
No doubt it brings up some interesting preemption questions/precedents. I do agree in practice the deal is unlikely to have gotten regulatory sign off from all (56 is the # I’ve traditionally seen) jurisdictions. Still, as I’ve said, hard to analogize b/c AIG is not really like any other insurer in size/scope.
The Fed does have authority over AIG as a financial holding company, but even that is limited and ambiguous - I just read that AIG’s FHC regulator in this case under GLBA, at least technically, was the OTS ( Merrill and Lehman opted for SEC). And like you and others have said, it is still unclear whether this gives the Fed the power to do this takeover/loan arrangement.
As much as it pains me on principle, I completely understand why they did this. And it’s actually structured to make the taxpayer some $ (though we’ll see).
September 18th, 2008 at 9:32 am
Re: Obama. As others have been saying recently, the media ought to be looking at how much cash Obama got from Fannie/Freddie in his very short time in the Senate and how close he is w/Jim Johnson, Raines etc. Don’t hold your breath.
With his Zelig-like shapeshifting, the crooks, commies and racists in his closet, and his far leftism, Obama’s got a serious glass jaw.
September 18th, 2008 at 10:12 am
I didn’t know A.I.G. was a financial holding company but I’m not surprised, either. Come to think of it, it would have been a huge surprise if a company that large didn’t own at least one bank. However, my (admittedly limited) understanding of banking law is that A.I.G.’s regulation as a bank/financial holding company focuses primarily on transactions as they affect the bank, it doesn’t give the federal government power to override state regulators with respect to transactions affecting the insurers. So in theory, federal regulators could have approved a sale of the bank to the fed, and the fed could have agreed to buy (or effectively buy) the unregulated subsidiaries, but not the insurers or their parent companies.
As to the number of relevant jurisdictions, 56 strikes me as implausibly high, unless they actually own individual insurers domiciled in each state. The California DOI lists insurers domiciled in 11 states (AZ, CA, CT, DE, IL, IN, NC, NY, PA, TN and TX). With that many companies, at least one is bound to be commercially domiciled in FL and another in UT, so figure 13 known domiciliary jurisdictions. There are probably a couple more, given that the CDI only lists the carriers that are admitted in CA, so any carrier doing business in a single state other than CA would not appear on that last. Between those 13+ and OTS, I’d say 20 regulatory authorities is probably in the ballpark. And I’m sure they all signed on to the A.I.G. bailout, stat.
September 18th, 2008 at 12:24 pm
Agreed there does not seem to be any Fed authority over the insurance side. My point was also that the Fed’s role is even ambiguous on the banking side b/c of the OTS jurisdiction over the thrift part.
As for jurisdictions, I was really trying to answer your question of 54 or 57 (I’ve seen 56 used most often) of potential regulators from an earlier post, w/o considering the actual AIG #. I think you’re on the money w/roughly 20. I did a quick check of AIG domiciles in Best and got 21 states (9 in addition to the ones you mentioned: CO, HI, LA, MI, MO, NE, NJ, PR, VT). That’s a real rough count and no telling that all those are in operation or big enough to seek approval from.
September 18th, 2008 at 1:06 pm
whoops. AK should be on that list, making 21.