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Jim Lentini: AIG crisis due to risky sales

Posted: May 18, 2009 9:49 p.m.
Updated: May 19, 2009 4:55 a.m.
 
Ever since the AIG financial crisis broke in the media, we in the financial business of insurance and investments have been answering questions and defending the insurance industry.

The media doesn't always get it straight, and focuses on creating newsworthy information.

AIG's financial crisis did not come from making the normal decisions a life-insurance company makes in the process of doing business.

The AIG financial-products unit, not the life-insurance company, participated in the sale of financial instruments that were not only risky, but also almost impossible to value accurately.

Unfortunately, AIG financial and others like it in the financial industry did not have to set up reserves or guarantees on the instruments they marketed.

So, when you associate any life-insurance company in with AIG, you need to understand the difference.

Life-insurance companies have very strict risk standards on how they invest and are highly regulated by federal and state regulations and audits.

The companies reserve against claims payments, and should those reserves fall lower than a percentage required above the guarantees of their annuities and life insurance, the regulators come in and seize the company, restructure it, and usually merge it with another life-insurance company to make all life insurance and annuities contracts secure.

If the financial industry had this type of regulation, or that of FDIC supplies to the banking industry, Americans would not be experiencing the financial mess we, the taxpayers, will be paying for some time to come.

Recent reports in industry periodicals reported that treasury department officials, in their infinite wisdom, under the TARP money endowed to AIG financial, bailed out and reimbursed the business partners at 100 percent of their investment.

Any business or financial analysis finds this formula for those participating in this type of speculative investments preposterous.

The biggest partners in the instruments marketed with AIG were Goldman Sachs, UBS of Switzerland and France Societal.

Keep in mind, our treasury secretary, the president's chief of staff, and others in the treasury department, are former employees of Goldman Sachs.

When this action became known, it infuriated many in the financial markets and insurance industry.

Should you want more information on this issue, don't hesitate to contact your congressional representative for the details.

For me and our clients, we will continue to focus on guaranteed retirement plans to protect our own assets and those of our clients for future retirement income.

Sorry for the personal opinion on this issue, but as a taxpayer I feel violated, and so do our clients and contacts. If you agree, please let your elected officials know.

Jim Lentini, CLU, ChFC, IAR is President of Lentini Insurance & Investments, Inc. He can be reached at (661) 254-7633. His column represents his own views and not necessarily those of The Signal.

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