I'm doing a presentation on the AIG crisis for my high school business class. I need to know who were the main people that caused the big screw up. Ex: the CEO's or chairmen. If you have a website that would help me that would be great too. Also if you know a good bit about the crisis and why it happened and could give me a small summary that would be great! Thank you!
Oh, ultimately, I blame it on Congress, and unscrupulous mortgage lenders. Here are a few reasons why:
1. Congress passed legislation requiring banks to finance loans to more first time homeowners - who didn't own houses, because they couldnt' afford them.
2. In order to get them on the books, uncrupulous lenders (to make a fast commission) started bundling adjustable rate mortgages (always a bad deal) with second mortgages, to do the "no money down" deal.
3. In response to Enron, congress also passed "Sarbanes Oxley", which requires publically traded companies to list the MARKET VALUE of their assets, at regular intervals.
Now, here's where it gets a bit tricky.
Mortgages have long been sold. So they get sold from one company to another. They get bundled together, and sold as a group - which decreases the investment risk, if only one in ten of those mortages defaults. They get grouped together according to similar mortgages. So you'll have a group of 25 30 year fixed rate mortgages, and a group of 3 year adjustible rate mortgage with balloon payments.
Now. Mortgages are a moderately secure investment - after all, people want to LIVE in that house, right? So lots of banks bought these bundled mortgages, and sold them, too.
BUT. All of a sudden, we have balloons coming due, for SUB PRIME mortgages, and the mortgages are adjusting upwards, and people who couldn't afford their mortgages before, well, they REALLY can't afford them now, and maybe less than 1 in 10, start defaulting, mostly on INVESTMENT properties. Well, the number is HUGE, and starts getting picked up by the media.
Businesses start freaking out, and the natural reaction is, they don't want to BUY any more of these subprime mortgages.
Because of Sarbanes Oxley, the MARKET VALUE of these mortgages is now ZERO. Think about it. Ten properties, did NOT go down to zero value! They're still worth SOMETHING! Maybe they've had an actual 25% decrease in value, but they're REAL worth, is still 75%! BUT, because no one wants to buy the mortgages now, the MARKET value, what is required to be reported, is ZERO.
So what WAS billions of dollars in assets - saleable mortgages, backed by REAL PROPERTY which is still worth BILLIONS of dollars, now, on PAPER, is zero. But it's only on PAPER, that it's worth nothing!
And, in my opinion, the only reason why AIG was handed those billions of dollars, and no other insurance company, is because THEY hold the pensions of the Congress.
Pure, selfish interest, on the part of Congress, to only bail out AIG.
South Lake...you're right. Greedy people who took advantage of unsuspecting people when they needed financial help (like debts they had of all kinds).
Two of my sons are mortgage brokers/loan officers, and one of them is somewhat unscrupulous and one is very caring toward people who need financial help. Of course, the rug has been pulled from under BOTH of them & the first one I mentioned SHOULD be left to writhe on the floor, but the second one---who is representative of 50% of the loan officers who were in business then---should be helped up off the floor and helped up like all the people the unscrupulous greedy loan officers & banks hurt.
Please add this to your thesis, because it's a major equation regarding this entire debacle of human greed.
There are 4 parties at fault .
1. Amateur speculative real estate investors .
2. Overly aggressive mortgage companies and of course the management of AIG .
3. The politicians who ignored the warnings starting with the Carter administration , and ending with Barney Frank .
4. Groups like Acorn and community organizers who intentionally promoted wreck less behavior .