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According to a report in the Wall Street Journal, AIG is in debt to Wall Street’s biggest firms to the tune of $10 Billion. The liability is due to speculative trades that have gone bad. Unfortunately the terms of the $150 Billion bailout made back in September didn’t cover the types of speculative trades that are causing this debt, leaving AIG again with their hand out asking for more money.

Even worse, the details of the trades seem to imply that AIG was not honest with the extent of its risk-taking actions when they made their appeal for help back in September.

“The soured trades and the amount lost on them haven’t been explicitly detailed before. In a recent quarterly filing, AIG does note exposure to speculative bets without going into detail. An AIG spokesman characterizes the trades not as speculative bets but as ‘credit protection instruments.’”

So let’s recap the extent of AIG’s attempts at bending the truth and wasting money:

• October 1st: Held weeklong retreat at luxurious $1,000 a night resort in Monarch Beach California.
• November 3rd: Held secret outing at resort in Arizona, hidden logos and signs.
• November 26th: Quietly announced they would be giving out ‘cash awards’ to 130 managers, including $3 million to retirement services chief Jay Wintrob.

And now

• December 10th: Realized they owe $10 billion because of risky investments that went bad, and weren’t discussed in their initial plea for government funds.

Time will tell what dishonest, money-wasting scheme they will come up with next.

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The news this morning was inevitable, with credit card companies slashing credit lines by 45% over the next year and half.

Although on one side, it may be a good idea for the issuers to limit their risk and to help consumers from racking up even more debt. However, with so many people struggling, especially those who are unemployed, the credit reductions could be dangerous and lead to defaults.

Read the article.

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