Will the Asset Purchase Plan (the Bailout) Work?

The Paulson Asset Purchase Program is a done deal. It’s final form will likely be approved on Thursday, September 25, 2008, the final day of this session of Congress. Some details of the plan must be negotiated, and Congress is generating a lot of heat because their constituents are furious, but an acceptance of the core plan is an absolute certainty.

The events leading up to the crisis that made this program necessary are described in the post below this so will not be repeated here.

Whether this plan will work, or the degree to which it will work effectively, is still subject to question and will continue to be long after the law is passed.

The plan will certainly avert a near-term continuation of the grave credit liquidity crisis that occurred last week, and that by itself is a strong positive. That crisis was as serious as is being described to Congress yesterday and today in hearings on this bill. A destructive global financial collapse was imminent on Wednesday of last week..

As the details of the plan are being debated in Congress, one serious tradeoff with both political and economic dimensions has emerged and is driving the debate on the final configuration of the plan.

The two parties in the tradeoff are the banks and other financial institutions who now own the bad debt versus taxpayers. These financial institutions will hereafter be called “banks,” but keep in mind that commercial banks in the United States hold only about $2 trillion worth of the approximately $10 trillions of U.S. mortgages outstanding. The rest is held by Fannie Mae and Freddie Mac, investment banks, foreign banks, and other players who are not commercial banks.

As will be explained below the outcome of the tradeoff will be set by a single, simple array of variables – the prices set for the assets that will be purchased by the government because of this plan. That same issue, pricing, will also determine the long-run effectiveness of this program and, to some extent, the probability of the crisis revisiting in another form in the future.

The Political Dimensions of this Plan

The timing of the crisis and hence the articulation of this plan is unfortunate. This has emerged just six weeks before a presidential election and only a few days before  Congress is scheduled to adjourn (they don’t convene again until January, 2009). The Congressmen who are shaping this plan in cooperation with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson are gravely concerned about the outrage that they are hearing from their constituencies. All members of The House are standing for election as are one-third of the Senators. They know that if the final version of the plan is perceived as an expensive taxpayer bailout of recklessly irresponsible banks, including foreign banks, the political cost will be high.

This political reality is clearly influencing the emerging details of this plan. Various attachments are being added to the plan, such as a vaguely defined component that promises to “help” homeowners with these troubled mortgages and a punitive provision that limits severance packages (“golden parachutes”) for fired bank executives.

Congress will almost certainly insist that the purchase plan be rolled out in installments over time, providing more interim oversight.

These secondary issues will not be addressed in this post.

More important, as be seen yesterday and today on the televised hearings on this bill, this political reality is firmly impacting the allowable methods for pricing the troubled assets that are purchased by the new federal agency. 

As will be shown below, whether this turns out to be an expensive taxpayer-funded bailout of this banks will be determined almost entirely by the prices set for the purchased assets.

The Essential Features of the Asset Purchase Program

The new law will authorize the creation of a chartered federal (government-owned) corporation similar to the Resolution Trust Corporation created during the Savings and Loan Bailout. For the sake of reference this corporation will be called the Asset Purchase Corporation (APC).

The APC will be given the right to directly or indirectly (through the U.S. Treasury) issue up to $700 billion of debt instruments, which will almost certainly be a mix of bills, notes, and bonds similar in maturity to those issued by the U.S. Treasury presently. It is possible that the U.S. Treasury will sell a mix of conventional Treasury bills, notes and bonds and release the proceeds to the APC.

The APC will then use the proceeds to buy the Collaterized Mortgage Obligations (CMOs) from the banks who now own them, on a voluntary basis. The CMOs will thereafter be owned by the APC (i.e. the U.S. Government) who will be entitled to all cash principal and interest payments from the active mortgages in the pool, but will also absorb the default loss from the same pool of mortgages. The banks will be permanently rid of these troubled assets and will gain some cash to improve their liquidity. More important, they won’t have to continue the quarterly “mark to market” required by the Sarbanes-Oxley Act of these troubling assets nor will they have to keep drawing heavily from the interbank lending market to continue their operations (the two provisions that provoked this crisis).

From these details is should be apparent that the final cost to taxpayers will be nowhere near the $700 billion funding authorization. The money will be used to acquire assets which have value and promise considerable future cashflow to the APC. The cost to taxpayers (in the form of debt service and debt redemption of course) will largely be determined by (1) the interest costs of the securities issued by the APC and (2) the spread between the cost of buying these assets and the present discounted value of the principal and interest payments of the performing mortgages in the CMO portfolios.

The value of the latter, however, cannot now be determined with any confidence. That value will largely be determined by future mortgage default rates and no one is sure of what those will be,  Statistically it is a random variable with a very wide and changing dispersion. In fact, its dispersion may become a function of the outcome of this bill.

Given this, the cost to taxpayers is indeterminate right now. It could be zero or even slightly profitable (not likely). But no present estimate, unless it has a very wide range, is now credible.

The outcome will also depend on how these CMOs are priced when they are purchased.

Pricing

This crisis emerged largely because banks are now required under the Sarbanes-Oxley Act to declare any reassessment of the value of their assets in their quartely earnings statements. In the jargon of the financial media, they are required to “mark to market” the value of their assets. This writeoff reduces shareholder equity and in the case of commercial banks lowers their capital reserves.

Because default rates are high and rising on the mortgages in the low-quality CMOs owned by these banks, these banks have been required to recalculate again and again the value of their CMO portfolios relative to their original notional value and then make those revaluations public. Not only does this depress stock market values and reduce capital reserves for banks, it also makes it harder for banks to borrow in the interbank lending market and other sources for short-term funds.

When Lehman Brothers failed, part of that failure was due to the fact that they had marked to market their CMOs to only 39% of their value. In effect, that would mean that a CMO originally valued at $10 billion would thereafter be perceived to have a value of less than $4 billion.

Because these markets are now illiquid these marked-to-market values are the closest approximations to the true value of these portfolios. They are what economists call “shadow prices.” But they may be biased prices and they may not accurately reflect the true long-run value of these CMO portfolios.

From this discussion it should be clear that the “price” of any CMO being referred to here is a percentage of the original notional value of the CMO.

To say that the dispute is over pricing of these CMOs, the reference is the percent of original notional value that the APC will pay for the purchase of these assets. Should they pay 40% or 60% or 52%?

Each CMO will have a different price because each CMO has a different risk profile and default history.

That begs the question about how the price should be set. Generally, the lower the price the less the benefit to the bank but the higher the price the higher the likely cost to taxpayers. 

If the CMOs are priced at a level close to the level recently implied by marking them to market, the purchases will not help banks very much, if at all. For one thing they would effectively converted a accounting loss not yet realized (and a loss from which there may be some recovery in the future) into a permanent realized loss. If the bank is crippled at present mark-to-market values, it will remain crippled after the sale if the price is close to that same value.

But if the current mark-to-market value is a reasonably good estimate of the true discounted cashflow value of the CMO, any price above that will entail taxpayer cost, and the higher the price, the higher the cost.

Clearly, the pricing mechanism is a critical component of this asset purchase plan.

Proposals for Auction

Because of the pricing issue, in his testimony before Congress on Tuesday, FRS Chairman Ben Bernanke suggested that some of the assets can be acquired through a reverse auction.

In a reverse auction the selling bank would begin the process by tendering an “offer” to that market. Effectively the bank might say, “We are willing to sell this at a price of 80%.” Ideally that would trigger a bid from an interested buyer at a lower price, like 60%. In a liquid and orderly market offer and bid should converge until a price is settled and the purchase would proceed at that price.

Selling through a Dutch Auction is also a possibly (a procedure too complicated to describe here).

But neither procedure would work for a project of this size undertaken so quickly. Such markets work only if there are a lot of players and there is confidence in the market. Since most banks are precluded from the bid side (if they could buy these they don’t need help) and they would normally be a large part of this market, buyers with adequate capital to participate are restricted to sovereign investment funds and large hedge funds and a handful of large private and corporate buyes. They might dabble but would never shoulder the entire risk. Far more important, the program implies that only the U.S. government would be on the bid side.

Auctions don’t work between two players.

Because of that Bernanke is actually proposing a “trial” or sample market, where this would be done (offered to the private markets) for a small subset of these CMOs, resulting in a shadow price that can be applied to the remainder of the CMOs.

That won’t work either. The liquidity issue still exists for even a small sub-set of auctions. Far more important, if the small auction results in a shadow price that would be applied to later purchases of CMOs, there is a huge incentive for the private players impacted by the pricing to game that auction, even if results in a CMO purchase that is anticipated to produce a loss. For example, if a $1 billion auction is meant to establish a price for a $100 billion CMO purchase, far better that the price be 76% than 52%, even if it produces a $200 million loss on auctioned CMO.

The price issue is therefore completely unresolved.

 

[To be continued, either by amending this post or in new posts].

 

 

 

A Mortgage-Crisis Fix with no Taxpayer Liability

PROBLEMS AND OBJECTIVES

The Problem

The problem with financial institutions has been so widely discussed that it is not discussed in detail here. It is assumed that the reader is somewhat familiar with the current crisis.

Essentially, banks, investment banks, and other financial institutions who hold these assets (hereafter “banks”) extended more than a trillion dollars worth of low-quality mortgages and packaged most of them into mortgage pass-thru assets called Collateralized Mortgage Obligations (CMOs). The default rate on the lowest quality loans, called sub-prime and Alt-A are at very high levels and rising and even on prime loans are at unacceptably high levels.

These high default rates have required banks to mark down the value of these CMOs to such a degree that the banks are reporting enormous losses in their quarterly reports, are in some cases failing to meet their regulatory capital requirements, and in the worst cases are unable to attract funding from other banks in the normally healthy inter-bank lending market. Some major banks have already failed and it is anticipated that more will follow without a remedy.

This crisis has become so serious that it is no longer contained within the banking community. It is beginning to adversely affect the global economy at large.

The Federal Reserve System and the U.S. Treasury have taken unprecedented steps to alleviate the crisis, but these steps have so far proven inadequate by themselves.

This document sees the problem as largely a crisis of liquidity. It does not accept the proposal, direct or implied, that those institutions responsible for the losses should be absolved of those losses. Nor does it accept any proposal that these losses should be born by the U.S. Government or those ultimately responsible for funding the U.S. Government, American taxpayers.

The Current Status of the Remedy Proposed by the U.S. Treasury

Over the weekend of September 20 and 21, 2008, U.S. Treasury Secretary Henry Paulson drafted the outline of a bill that will presented to the Congress when it convenes on Monday, September 22. Although this plan will quickly evolve, as of the time of the original posting of this document that plan had three primary features which are reproduced here verbatim:

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

The complete language of this bill might still be available at the Online Wall Street Journal and other internet sources.

The language above does not imply that the U.S. Treasury would be hostile to a plan such as this. This plan would readily fit into the framework of the Paulson proposal (because that plan in the above configuration has few details), except that it may not be necessary to expand the ceiling on the national debt to $11 trillion.

The Object of this Plan

This plan provides a solution that will provide immediate liquidity to impacted banks, allow those banks to defer their losses and find the means to mitigate them over a long period of time and to calm the markets that are reacting to the fear of widespread bank insolvency. In a few words, this plan provides a path to safety and solvency.

The Essence of this Plan

This plan proposes that a federally-chartered corporation be created as a government sponsored enterprise, that the corporation borrow funds, and that the corporation engages in long-term swap contracts with the banks that need liquidity, charging rates for the swaps that are set by market.

THE DETAILS OF THIS PLAN

The Creation of an Institution to Execute this Plan

The U.S. Government will create and provide a temporary charter to create an institution responsible for funding and executing this plan. For the sake of reference, this plan will call that institution the Federal Refinancing Corporation (FRC). The FRC will be a government-sponsored enterprise (gse), which implies that its debt is guaranteed by the U.S. Treasury. The FRC might be structured somewhat like the Resolution Trust Corporation (RTC), created in 1989 and dissolved in 1993, used to resolve in part the Savings and Loan Crisis of that era. Like the RTC, the FRC will be a corporation with an eleven-year life set by law.

Funding the FRC

Upon it’s creation, the FRC will have indirect access to the global credit markets as a gse (indirect rather than direct access is a subtle feature of this plan and will be explained in detail below).  The FRC will have a funding cap set by its charter. Assume that the cap will be set at $700 billion, but could be an amount less or more than that. The financial assets created by this funding will consist of FRC coupon-only notes with maturities of 2, 3, 5, 7, and 10 years, authorized by the FRC but sold by the banks receiving that authority.

Offering and Closing the Swap Contracts

As the FRC funding proceeds, the FRC will offer to interested banks swaps that will exchange the CMOs in the bank’s portfolios for the authorization to sell FRC coupon-only notes, which can then be sold by the banks for the cash and hence the liquidity that they need.

Although the periodic interest payments on these notes will be guaranteed by the FRC, the payments will be made by the bank that is party to the swap.

When the swap matures, which will coincide with the maturity of coupon-only notes to which they are matched, the banks reassume ownership of the CMOs (and will still have rights to any remaining mortgage payments but will also be liable for any remaining net losses in the mortgage portfolio). The FRC obligation to this transaction ends because the coupon-only notes matched to the swap will have matured when the swap expires and there is no final principal redemption with coupon-only notes.

Payments and Guarantees

In this plan banks are offering their CMOs as collateral for the authorization to sell FRC-guaranteed coupon-only notes. Consequently the banks will be responsible for servicing the mortgage loans as they presently do and will be entitled to all payments collected from those mortgage payments. The FRC will neither service the mortgage loans nor collect the proceeds. The banks will be required to make the interest payments on the coupon-only FRC-authorized notes.

The Size of the Individual Swaps

For any given CMO that a bank is offering for collateral, the swap authorization to sell FRC-guaranteed notes will be determined by the bank (subject to FRC approval) but will be capped at 90% (0.90) of the value of the original notional value of the CMO as described in the prospectus of the CMO. In other words, if a CMO was first originated with a notional value of $1 billion, a swap authorization of up to $900 million will be authorized.

This authority will normally be extended even if the present perceived market value of the CMO is less than this amount, and even if the CMO has already been marked down to a lesser value of the books of the bank in question. It won’t do the banks any good to be authorized to borrow an amount that they might currently be able to raise merely by selling these distressed assets. (The FRC must have the right to lower the cap because of extenuating circumstances involving the lender, but normally this wouldn’t be done).

This puts an obligation on the banks to reconcile to implied spread between the collateral value and actual value of their CMOs, but gives them up to 10 years to do that.

The Maturity of the Individual Swaps

The swaps and their corresponding notes will be offered with maturities of 2, 3, 5, 7, and 10 years. It will be up to the banks to choose the maturity that suits them.

Banks will have roll-over privileges subject to the approval of the FRC. For example, if a bank chooses a 3-year swap, at the end of three years if the bank is unable to resume its CMO liability, it can be authorized to enter another swap arrangement for, say, two more years. The total duration of all swaps is limited to ten years.

Pricing of Notes and Yields

As is done for nearly all other securities offered, including U.S. Treasury Securities and gse-sponsored securities such as those sold by FNMA, the market will determine the coupon yields of notes and the inherent pricing of notes that are contingent upon those coupon yields.

The FRC should allow some of the initial offerings to proceed without interference, but if it appears that the market is imposing coupon yields that imply an unacceptably high level of liability, the FRC must give itself the right to restrict sales to Dutch Auctions under FRC supervision subject to rate cap reserves for some sales, or some equivalent of this restriction.

In cooperation with the issuing banks, the FRC will determine the periodicity of the coupon payments on the FRC-authorized notes.

Secondary and Derivative Markets

It is anticipated that secondary and derivative markets for these securities will be quickly developed by the private markets without federal participation.

Orderly Market

Because the private markets may not be willing or able to absorb a large quantity of these notes, and given that the current crisis may require that, the Federal Reserve System must be willing to temporarily make a market for these assets by, for example, participating in some of the bids, acquiring some of the assets, then reselling them later (as they do on a seasonal basis for U.S. Treasury Securities).

However the Federal Reserve System cannot be allowed to take a market loss on such securities, as it would if, for example, they acquired the notes with a 6% coupon and had to resell them for an 8% coupon.

Therefore, if the Federal Reserve System is the party that acquires the notes at initial release, they will pay to the selling bank 50% of the bid value of the notes. For example, if the Federal Reserve System bids and wins a note tender for $1 billion paying 6% coupon interest, it will pay cash or equivalent of $500 million to the selling bank.

When the note is resold by the Federal Reserve System to a non-government buyer, the remaining balance will be reconciled 

FRC Implied Liability

Because the periodic interest payments on FRC-authorized coupon-only notes are guaranteed by the FRC (and hence the U.S. Government) there is certainly an implied FRC liability.

However, any bank that fails to meet its coupon obligations will have the same legal status of failing to meet any other financial obligation, and would have a very strong incentive to make such payments. Because the cash is raised up front the banks would gain some time in meeting such liabilities.

Likewise, a market for default swap insurance would likely develop to spread and mitigate the risk of payment failure. That market has failed in the current crisis but a revived and restructured market could work in this context.

A Swap Insurance Fund

Despite the likely development of a credit swap insurance market for bank FRC-authorized liabilities, the U.S. Treasury and taxpayers have the right to insist upon another layer of protection. This plan therefore proposes that a insurance pool be developed to fund any emerging liabilities of the FRC that arises because of defaulted coupon payments that are not covered by private credit insurance.

That insurance pool will be funded by a one-time fee levied against cash collected at the time of sale of the FRC-authorized coupon-only notes, equal to ½ of 1%, (0.005), of the amount raised in the sale.

The Impact Upon the U.S. Treasury and U.S. Taxpayers

Although the U.S. Treasury is responsible for default on coupon payments that banks fail to make, that is anticipated by the Swap Insurance Fund. There is no other liability. Because the notes do not include a final principal redemption, the FRC has no lingering liability when the swaps are unwound.

Although this plan gives banks, investment banks, and other institutions who hold these CMOs, liquidity and funding presently, it does not absolve them of the need to reconcile their losses. It just offers them much more time, which given the general strength of the core businesses, is all they need.

 

The AIG bailout may not be the end of the credit insurance problem

[Draft originally posted  September 17th and revised– comments about errors would be appreciated].

 

The Federal Reserve System socialized AIG because of their CMO credit insurance exposure. Is this the last chapter in that book? Can we now sleep better?

Alas, no, I don’t think so. It’s chapter one of what may turn out to be a long, sad story. As they say, it is still a dark and stormy night.

Most of you know the outline of the AIG bailout because it was roundly discussed in The Wall Street Journal and on CNBC, in addition to the press in general, blogs, and other media sources. So I won’t revive the details of the intervention, just a brief summary.

AIG is a holding company that owns subsidiaries in all areas of traditional insurance (life, fire, property, fixed and variable annuities) and businesses unrelated to insurance, such as aircraft leasing. But AIG, through its subsidiaries, had also invested directly in CMOs and wrote insurance against CMOs in the form of mortgage guaranty insurance and credit default swaps. According to a Standard and Poor’s stock report on AIG dated September 16, 2008 (yesterday) 11% of AIG’s $860.2 billion of invested assets were comprised of this mix of mortgage obligations.  That number, $94 billion, goes a long way toward explaining why the Federal Reserve and Treasury Secretary Paulson came up with the number of $85 billion in their 2-year line of credit extended with FRS money to AIG.

And that is what was extended – a line of credit (rather than, say, a direct cash transfer loan) priced at LIBOR plus 8.5% that AIG can draw on as needed for up to two years. The “socialization” part arises from warrants given to the U.S. government for up to 79.9% equity stake in AIG if the company does not dance when Paulson pulls the strings.

Well Paulson has to get something for losing face. He just said that he wasn’t going to save any banks, and let Lehman fail to prove it, then he turns around and has the FRS save an insurance company, an area of business not normally regarded as under the jurisdiction of the FRS. Not even close. Unprecedented.

AIG’s salvation was made necessary by a downgrade in their Standard and Poor’s credit and debt rating from AAA to AA+ after market close on Monday. This downgrade set off trigger clauses in AIG’s mortgage insurance contracts that required AIG to post more collateral than it had access to and might have allowed third parties to back away from their swap obligations to AIG (I am not sure about the latter but I think it is true). AIG didn’t have the cash to cover their collateral requirements.

We were told that they were too big to fail. The domino effect. All that.

This is what nagged at me as I watched this drama unfold on CNBC and read about it in The Wall Street Journal. Sure, AIG is big, huge in fact, but 90% of their business is in insurance subsidiaries whose assets are completely insulated from their credit insurance subsidiaries (although I did read somewhere that AIG was considering at one point swapping assets with one or more of their traditional insurance subsidiaries to gain temporary liquidity, which, if true, was not only inadvisable but probably illegal). So what was described as too big to fail was only the credit insurance business.

But AIG didn’t have 100% of the market share in credit insurance. So far as I knew they weren’t even the largest insurer. Given that, how far does this “too big to fail” obligation extend.

There are about $650 billion in credit insurance liabilities out there in an unregulated industry held by a host of companies that have only $54 in reserves dedicated to coverage of this insurance. (See Gretchen Morgenson, “Credit Default Swap Market Under Scrutiny,” International Herald Tribune, August 10, 2008. This article also points out that as of that date, AIG had already written down its mortgage-related portfolio by nearly $30 billion).

Today I looked into that. I began by listing the other companies that I knew or suspected were in the business. That list included MBIA, Ambac Financial, MGIC Investment, XL Capital, Security Capital Assurance, FGIC Corporation, CIFG Holdings, Syncora Holdings Limited, and also potentially included large European re-insurers like Swiss Reinsurance and Munich RE.

I first looked at the latter, the two large European reinsurance companies and could find little reliable data, but what I did find gave me the impression that their exposure is not all that great.

I decided to then look at the two that are probably best know in the U.S., Ambac Financial and MBIA. I knew that Ambac had been scrambling around as of late, but I couldn’t find hard data.

I found hard data on MBIA though in the Standard & Poor’s stock report for the company dated September 13, 2008. Just as I thought, based on 2007 year-end data, they have much more exposure than AIG. Just to insure accuracy I’ll quote from page 2 of the document:

“At December 31, 2007, the net par value of the company’s insured debt obligations was $678.7 billion, of which ...[a long list of bond insurance obligations expressed as a percentage of this amount] ... U.S. structured finance obligations (asset/mortgage backed) 23%, and international structured finance 12%.”

Although some of this may be linked to credit card or commercial property CDOs (which are also in trouble and will provide future headlines), this seems to suggest that MBIA has exposure to at least $235 billion in mortgage-linked credit obligations and most of this “structured finance” is simply default insurance.

That is a lot more than $94 billion.

Now even though we have still only accounted for, at most, about one-third of the troubled mortgage credit insurance that is floating (sinking) around out there, it may not be time to panic. MBIA and Ambac Financial are supposed to be in much better financial shape than AIG. In June 2008 Standard & Poor’s dropped MBIA’s and Ambac’s bond insurer ratings from AAA to AA and put them on a CreditWatch. On August 15^th Standard and Poor’s removed the CreditWatch and affirmed the AA standing, which was a positive development and implied that capital holdings as of that date were above the amount required to maintain AA status.

Of course, as we know, Standard & Poor’s is not always ahead of the curve on credit ratings.

MBIA seems to have about $42 billion in liquid assets. In normal times that would seem like a lot but these days I’m not so sure.

In contrast to MBIA, the traditional bond insurance company, AIG, the general insurance company,  has been in an accounting scandal not unlike Fannie Mae and has had to remark their books accordingly, forcing veteran CEO Hank Greenberg out of his chair. The company has been through a maze of regulatory tangles in recent years.

Nonetheless,  little of this gives me a confidence in the hypothesis that AIG is the end of it. AIG may have been too big to fail but AIG is no more than a piece of a bigger jigsaw puzzle.

Credit default insurance is sort of like earthquake insurance along the San Andreas fault. You make a fortune in high fees until the day the 7.8 hits, and then every insurer is wiped out.

 Credit insurance is much like this because the statisticians that rated all of these insurers high assumed statistical independence between the CMOs that are insured, and just like global bond markets, there is no statistical independence in times of crisis.

By the way, despite hoary Hank Greenberg’s appeal to CNBC’s Maria Bartiromo (who never asks a hard question and seems to fall head over heels over whomever she interviews) to save AIG, it will be chopped up. One of strongman Paulson’s conditions for socializing AIG was to displace newly minted CEO Robert Willumstad before he had a chance to do his job and replace him with Bush/Paulson/Rove crony Edward Liddy whose last job was to chop Sears, Roebuck, and Company into pieces. Sorry Mr. Greenberg. Your legacy and cash have gone the way of Lehman and Bear. Nobody respects tradition anymore.