"The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October.....Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.
But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion....Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before...."
Several reasons for including this one. First and foremost it gets to a serious question. Were the initial infusions by the government just a stop gap measure and will even more be needed. (The idea of throwing good money after bad comes to mind). Secondly in class yesterday we talked about information asymmetries and how accounting can only partially lessen the problem and that firms can have billions of dollars of losses that investors may not be aware of even after reading the financial statements. And finally a student in class is doing a paper on this and what the executives must have known (or at least should have known) before hand.