Issue of the week: What did AIG do with all that money?

AIG has spent more than $70 billion of the $85 billion loan the government provided in October. Since then, the government has supplied an additional $59 billion in credit. Did AIG low-ball its estimates of losses on credit default swaps?

What happened to all that money? That’s what a growing chorus of legislators and accounting experts is asking this week about the costly federal takeover of giant insurer AIG, said Gavin Magor in TheStreet.com. “It took AIG less than a month to burn through more than $70 billion of the $85 billion bridge loan” that the Federal Reserve granted the company in October. Since then, the federal government has provided an additional $59 billion in credit, for an eye-popping total of $144 billion. AIG says that much of the money was used to cover losses on credit default swaps, the exotic insurance contracts that dragged AIG to the brink of collapse.

But that answer just raises more questions, said Mary Williams Walsh in The New York Times. As recently as September, the company claimed its losses on the swaps were under control. Did the bottom suddenly drop out in October? “Some analysts say that at least part of the shortfall must have been there all along, hidden by irregular accounting.” And there’s “tantalizing support for this argument.” A former Securities and Exchange Commission accountant hired by the company to clean up its book­keeping resigned from the firm after being excluded from meetings at which the value of the swaps was debated.

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