Monday, January 27, 2020
Unethical issues of AIG
Unethical issues of AIG Company history         American International Group, Inc is a company whose operation began back in 1919. It was established back then by Cornelius Vander Starr as an insurance agency in Shanghai, China. AIG left china in 1949 after Starr had established himself as the westerner the sell insurance to the Chinese people. AIG headquarters then shifted from china to New York City, which is still the headquarters up to date. It is from here that AIG began its expansion tapping into other markets such as the Latin America, Asia, Middle East and Europe through use of its subsidiaries.         It was in 1962 when Starr transferred management of AIG United states holdings to Maurice R. Greenberg. Greenberg introduced policies that made the company shift from its original personal insurance background to anew high market corporate targeted cover. The new management under Greenberg went on to focus mainly on selling AIGs insurance packages through independent brokers. This deviated from the initial system which made use of company agents thus eliminating the agents salaries. This move aimed at reducing the expenses of the company but it led to decreased sales in some of the companys products. Greenberg was named the successor to Starr in the year 1968. In the following year 1969 AIG first went public.         The start of problems facing AIG began during the tenure of Greenberg as AIGs CEO. It was during tenure that the company expanded from its initial line of insurance into other many complex lines of business and insuring risks that only a few other companies would consider handling. This led to the involvement of the company in businesses that it did not fully comprehend. AIG started investing in many different types of securities which included mortgage backed securities and also credit derivatives trading. AIG then went ahead to become a leading player in these markets, insuring other companys debt obligations against losses due to its excellent credit rating at the time.         It was AIGs Financial Product Unit (AIGFP) that brought about the fall of the company, due to its disastrous credit swaps product. AIGFP was founded in the year 1987 by three Drexel Burnham Lambert Traders who were led by a Howard Sosin, a finance scholar. They convinced Greenberg based on the companys AAA credit rating to create a division which focused on complex derivatives trade. Greenberg and Sosin signed an agreement in which 38 percent of money earned went to AIGFP while the remainder 62 percent went to AIG. If things had to go bad down the line it was AIG and not AIGFP that would be on the hook. AIGFP continued its expansion program opening branches in other countries such as London, Tokyo and even Paris. Despite the fact that AIGFP had never made even a single credit swap by the year 1998 the unit had revenue of over $500 million (Tpmckraker, 2009)..         It was in 1998 that AIG was approached by JP with a proposal to insure JP Morgans Complex corporate debt. It was stated by Gary Gorton, a Yale Business Professor that the chance of AIGFP not paying out these deals was almost 99.85 percent. This was based on the reasoning that for the unit to pay out these deals the economy would have to be in a full blown recession and that in this situation the counter parties would have already been wiped out. It was with this deal that AIGFP agreed for the first credit swap with Savage the then CEO signing the deal. Later in 1998 Cassano replaced Savage as CEO of the company. Although Cassano was not experienced in the complicated assessment of risks using computer models he was gifted in accounting and credit. It was through Cassanos strong desire to succeed that led to growth of the units revenue to 1 billion in a year and also led to a significant growth in the number of employees to 400 in 2005. AIG What went wrong? The start of problems facing AIG began during the tenure of Greenberg as AIGs CEO. It was during tenure that the company expanded from its initial line of insurance into other many complex lines of business and insuring risks that only a few other companies would consider handling. It was in the year 2002 that AIGFP was charged by the justice department for illegally helping PNC Financial Services to not correctly show their bad assts in their books. AIGFP did this by setting up a separate company special purpose entity to handle all the issues related to the assets of the PNC firm. By doing so AIGFP was alleged of breaking the securities law by setting up the company by the Feds that would invest in the firm making it appear real. It was until 2004 that AIG would fully settle the charges against it. It was asked to give back over $45 million in fees, a fine of $80 million and in addition give up all the interest it had earned on the deal. The unit was not formally sanctioned due to the incident but the justice department placed it on a short leash.         It was in March of 2005 that Greenberg stepped down as the CEO amidst investigations on allegations of accounting malpractices at the firm by the New York Attorney General Eliot Spitzer. The issue under investigation by then was not directly related to AIGFP, but the effects of the dealings eventually affected the operations of the unit negatively. Following the departure of Greenberg at the helm of the company and in addition the investigations ongoing within the organization the credit ratings agencies downgraded the companys credit worth from AAA to AA. This reduction in AIGS credit rating led to provisions in some of AIGFPs credit default swaps. This made AIG to pay in collateral for the deals over $1 billion. This was the mark of many dark days for the unit.         It was until later in the year that Eugene Park an executive at AIGFP was named to closely look at the portfolio containing the firms credit default swaps. The evidence was alarming in that the unit had insured many CDOs that had large proportions of it as sub prime mortgages. This meant that in any situation where the housing market had to collapse the risk of default was too high. This coming up after the downgrading of the units credit ratings indicated an increased chance that AIGFP had to come up with collateral to pay out all the bets it had made in the past. After Cassano was informed of the report he put up a group of investment bank researchers whose prime job was to assess the risks posed by the sub prime mortgages. The credit default swaps were stopped later in 2005 but this came as a case of too little to late owing to the fact that Cassano could not avoid obligations to his unit of over $80 billion worth that was in the form of collateral ized debts that were inform of already made swaps in the books of AIGFP.         In the year 2007 with the collapse of the housing market and plummeting in value of sub prime assets AIG was supposed to pay a sum of $1.5 billion to Goldman Sachs based on the credit default swaps insured by AIG to cover the mortgage backed securities. During the same year AIG had to pay $2 billion to meet the demands of other firms that made collateral demands. It was during this year that the stock prices of AIG fell 25 percent and a reported loss of $1.1 billion in portfolio swaps in AIGFP. The problems facing AIG continued further with the company reporting a loss of $11.5 billion and in addition $5.3 billion posted as collateral in February of 2008.         AIG would get further shock as the credit rating agencies planned to further downgrade the companys credit ratings as at September of 2008. This would trigger needs for more collateral that the company would not handle. What was unethical about AIG?         What was unethical about AIG was that the company would hand out multi-million dollar a bonus to its over 450 employees operating in its six offices around the world. After handing out these bonuses AIG still had the guts to accept a government bail out plan, this was as the country underwent recession with most of its citizens unemployed and barely making ends meet. AIG also conducted some unethical behavior with its executives dealing in unethical financial reporting practices and illegal brokerage as uncovered during a recent investigation by New York Attorney General Eliot Spitzer (Cooper, 2006). AIG Whistleblower         Former AIG CEO Greenberg claimed that following his departure internal controls he had established during his 40 years at the helm of the company had been abandoned. This was made in comments written to the made House Oversight and Government Reform Committee. In the comments Greenberg accused Robert Willumstad and Martin Sullivan who were both his successors as the CEO of AIG of being unable to execute enough oversight on AIGFPs division. And it was for this reason that the company faced a lot of troubles emanating from the divisions $500 billion portfolio. Greenberg claimed that the branch which was formed in 1987 was the company beginning to its downfall. Reports said that until this time AIG had lost $50 billion and made a $25.9 billion in mark to market losses. This was related to securities the company held in its investment portfolio and its CDS value.         Greenberg in his letter said that within the nine months a lot of credit collaterals default swaps had been made leading to increased obligations on the companys debt. This he said was different during his tenure and it was after he left office that most of the default swaps done by AIGFP were exposed to sub prime mortgages. . This led to the involvement of the company in businesses that it did not fully comprehend. AIG started investing in many different types of securities which included mortgage backed securities and also credit derivatives trading. AIG then went ahead to become a leading player in these markets, insuring other companys debt obligations against losses due to its excellent credit rating at the time. AIG today.         AIGs future is still not clear after facing years of problems. It is now a year since AIG was bailed out by the federal government and the company is still in a transition. The company is undergoing several transformations that include increased efforts to appoint a new chief executive officer, its initiative to sell most its non core assets tied to the firm and the increased anticipation take off of its new Chartis brand dealing with its commercial property operations. AIG is still faced with the responsibility of repaying federal loans handed to it by the government which amount to billions of dollars. This is further complicated by the fact that it is still unknown how much the governments patience will last. All the above reasons lead to the inability of experts to gauge the companys future (Time. The curious Capitalist, 2009).         The future of AIG is still dependent on the financial market stabilization. The companys policy holders are encouraged by the companys gradual rise from its problems. The process of redefining AIG i.e. prompted shifts in capacity has led to some of its clients having to reassess how they relate to the insurer. Most of the companys clients have chosen to remain loyal and appreciate the efforts made by the combine AIG and Chartis. Clients believe that the decision by the company to re brand its casualty operations was a step in the right direction. Although the Chartis spin off expected to be in the form of a public offering date has not been set, Chartis made a good start by explaining that it would take some time to its clients. AIG though slow in the process of disposing its noncore assts has made it clear that it would make sure that it gets the true value of its businesses through the process. The other looming question on AIGs future is its abilit y to repay the government bail out loans. References Top of Form Cooper, R. W. (2006) Research in Ethical Issues in Organizations Spitzers Allegations of Unethical/Illegal Behavior: Has the Insurance Industrys Ethical Environment Really Changed Dramatically? New York: Emerald Group Publishing Limited. Mary, D. M., Irene, N. M. Victoria, S. (2006) AIG: Accounting and Ethical Lapses. New York: Emerald Group Publishing Limited Time. The curious Capitalist. (2009, Aug). AIG: Still a company. Retrieved October 5, 2009, from http://www.time.com/ AIG Still a company The Curious Capitalist TIME.com.htm
Sunday, January 19, 2020
Tutorial of Enterpreneur
Tutorial 8 (topic 7) Preparing A Proper Ethical And Legal Foundation Q1. In general, do entrepreneurs tend to overestimate or underestimate their knowledge of the laws that pertain to starting a new firm? What does answer to this question suggest that entrepreneurs do before they start a firm? In general, entrepreneurs tend to overestimate their knowledge of the laws that pertain to starting a new firm. Before entrepreneurs start a firm, they should seek for lawyer to get some legal advice, get sources and information about the business, refer to book, or search the information thru the internet about the legal issue that they face.Q2. Describe what is meant by the terms code of conduct and ethics training programs. What is their purpose? The term code of conduct is a formal statement of an organization’s values on certain ethical and social issues. Which means it is a set of formal statement for a firm or company to concern and emphasis on the values on ethical and social iss ues. For example, value that an organization expect employee to carry out some task, the method on how employee serve customer, social responsibility for an organization, privacy, and others.Then, ethics training programs is teaching business ethnics to help employee deal with ethical dilemmas and improve their overall ethnical conduct. It means, ethics training program is a set of system or some courses that use to lead employee deal with ethical dilemmas, which is a situation that employee involve some activities that is beneficial to oneself or the organization, but may be unethical. For example, an employee using company’s computer to carry out new program, thus this may raise an issue whether the new program is the property for an organization or the particular employee.Also, improve overall ethical conduct can be done by implementing an ethics training program because it can help employee to deal or response to ethical dilemma. The purpose for code of conduct and ethics training programs is to promote a healthy climate of business ethics and avoid lawsuit in a firm. Also, the purpose is to establish a strong ethical culture and avoid litigation. Q3. Describe what a founders’ agreement is and why it’s important for a team of entrepreneurs to have one in place when launching a venture. A founder agreement is a written that deals with issues such as the relative split of he equity among the founders of the firm, how individual founders will be compensated for the cash or the â€Å"sweat equity†they put into the firm, and how long the founders will have to remain with the firm for their shares to fully vest. It means founder agreement is a formal document that mention about the profit sharing between the founders by following the amount of initial investment between the founders. Items that include in a founders’ agreement are nature of the prospective business, a brief business plan, legal form of business ownership, buyb ack clause, description of the initial operating capital and others.It is important for a team of entrepreneurs to have one in place when launching a venture because it can avoid the conflict such the problem between the founders regarding the profit sharing and distribution of stock at the end of the business, avoid litigation, and to know the expectation of their own role in the organization. Therefore, founders’ agreement is important to act as a set of rules or guideline while founders are conducting their business and it can reduce most of the issues that can harm the performance of a business. Q4. Describe the purpose of a non-disclosure agreement and the purpose of a non-compete agreement.Non-disclosure agreement is a legal document or contract sign between two parties, which is restrict the access or by third party. The purpose of a non-disclosure agreement is a promise made by an employee or supplier who does not disclose the trade secret between the firm to the thir d party or outsider. Also, a non-disclosure agreement is a contract through which the parties agree not to disclose information covered by the agreement. On the other hand, non-compete agreement is a contract between one party such as employee agrees not to pursue a similar profession or trade in competition against another party such as employer.The purpose of a non-compete agreement is to avoid the possibility that upon the termination or resignation for an employee might begin working for a competitor firm or starting a new business which is related or similar with the employer’s business in a specific geographical area and time frame. Q5. What are the advantages and disadvantages of organizing a new firm as a sole proprietorship? Is sole proprietorship an appropriate form of ownership for an aggressive entrepreneurial firm? Why or why not? The advantages of organizing as a sole proprietorship are being the simplest form of business tructure. Then, creating a sole propriet orship form is easy and inexpensive so a starting cost can be reduced, and then an owner maintains complete control of the business without any intervention in decision making, and profit is own retain by the owner, business losses can be deducted against the sole proprietor’s other sources of income, and the business is not subject to double taxation because the income earned by a sole proprietorship passes directly to the personal income tax return of the owner, and then business is easy to dissolve due to without any partners and complex agreement.Whereas, the disadvantages of a sole proprietorship are liability on the owner’s part is unlimited so if a business is facing deficit, owner is responsible for all the losses. Then, the business relies on the skills and abilities of a single owner in order to manage the business wisely. Furthermore, raising capital can be difficult because of only owner is running the business without any help from partners. Moreover, the business ends at the owner’s death or loss of interest in the business, the liquidity of the owner’s investment is low due to low capital and cash flow can be used in generating more profit.A sole proprietorship is not an appropriate form of ownership for an aggressive entrepreneurial firm. An aggressive firm will probably need to raise capital early in its life because it is important for an aggressive firm to have a huge amount of capital in competing the earlier stage in the market, thus it is not possible under the sole proprietorship form of ownership. Also, in an aggressive entrepreneurial firm will be taking more risk in the investment, hence a limited liability form of company is more suitable in an aggressive entrepreneurial firm, which owner can limit their personal losses.
Saturday, January 11, 2020
Analysis of Robert Hayden’s poem “Those Winter Sundays†Essay
In â€Å"Those Winter Sundays†by Robert Hayden the story between the speaker and the father embraces the ideas of unseen love and the speaker’s regret. The poem is a result of the speaker’s reflection on his or her past experiences with his or her father. Hayden shows all the little things the father does, and how the speaker takes it for granted that the father just kind of did those things. Looking back, the speaker has now realized and understands what the father really had gone through for him. The descriptions Hayden uses expresses to the reader both the love of the father and the regret from the speaker’s reflection. Hayden goes into detailed explanations of examples of the father’s devoted love. His love isn’t shown through hugs and kisses, but through caring little things that bring happiness to the speaker’s day. This happiness can be seen by the regret the speaker shows when he says things like, â€Å"No one ever thanked him†(5). The father’s devotion is seen in lines 3-5, â€Å"with cracked hands that ached from labor in the weekday weather made banked fires blaze†(3-5). It is evident that the father, regardless of his own cares, makes the effort on those winter Sundays to try to make things a little easier for the speaker. Unseen by the speaker, the loving father has gotten up early and brought warmth into their home, and into the speaker’s day. Also, in line 12, â€Å"and polished my good shoes as well†(12), the feeling once again is presented of this father doing all he can to take care of the speaker, and show his love through his a ctions. This unseen love can also be noticed in the speaker’s thoughts. This poem is a reflection of his or her regret for not having been more thankful towards this man who cared so much for him or her. Once again line 5 shows us just how regretful the speaker was, â€Å"No one ever thanked him†(5). The use of the exaggerative word, ever, just shows how now the speaker has realized his folly and regrets not being more loving towards the father in turn. Also, in line 10 the word â€Å"indifferently†further points out the speaker’s realization. In the second to last line â€Å"What did I know, What did I know†(13), it seems like the speaker is almost scolding himself for this indifference. This line also especially exemplifies the speaker’s regrets. It almost seems like they’re are wailing over the fact that they had not been more loving because of the repetition of the question. So, the unseen love of the speaker is not present directly in the poem’s text, but can be felt through further analyzation of the poem as one full of regret. Maybe the speaker had not realized this love do to the lack of communication between himself and the father. Line 9, â€Å"fearing the chronic angers of that house†(9) makes it seem like the father showed â€Å"tough love.†His intentions were always good, but maybe he pushed the speaker too hard and led to some lack in communication. This lack of a relationship with the father could be just another reason for the speaker’s regret. â€Å"Those Winter Sundays†presents both directly and indirectly the idea of unseen love. Directly when talking about the fathers actions, and indirectly through the reminiscing of the speaker. This poem in its entirety is about regret for taking for granted the love of the father, and not having returned that love, or shared a better relationship with the father.
Friday, January 3, 2020
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