Caprio: AIG struggle may put $130M in R.I. funds at risk
6:05 PM Tue, Sep 16, 2008 | Permalink
Email
 |
 |
Projo 7 to 7 News BlogTaking the news pulse of Rhode Island and Southeastern Massachusetts, by Providence Journal and projo.com staff, from 7 to 7, every business day |
|
Get the 7 to 7 on your mobile at www.projo.com. Twitter: projo | RSS | Email alerts
« Graffiti spurs North Cumberland Middle School evacuation |
Main
| Wall Street waves toss Ocean State stocks »
By Katherine Gregg PROVIDENCE -- A collapse of American International Group, Inc. could leave the state Department of Transportation and at least one other state agency scrambling to recover more than $130 million they invested with the global insurance giant, according to state Treasurer Frank Caprio. "In a worst-case scenario, the meltdown of some of the financial giants of our country will cause strain on Rhode Island's budget and every other state budget in this land," Caprio said. "It may require, in a worst case scenario, action from Congress and assistance from the federal government and after that it may require additional resources from state and local governments." But, he added, "we're dealing with, as Alan Greenspan said, a once in a century type of financial event. And from Rhode Island's standpoint, our review at this point, it's a manageable issue. We'll get through it.'' In an interview today, Caprio acknowledged the value of the state-run pension fund -- which dropped from $8.4 billion at the beginning of this year to $7.725 billion on Aug. 31 - was down to $7.38 billion yesterday as Wall Street reacted to a convulsions in the marketplace. Today, the value of the fund went up by an as-yet-undetermined amount, according to the state treasurer's office. But Caprio said the most pressing issue for Rhode Island is the potential failure of AIG, which has been described as the largest corporate insurer in the United States. It sells protection against some of the biggest risks, insuring planes and commercial shipping and providing coverage against terrorist attacks. In Rhode Island, agencies such as DOT and the Rhode Island Clean Water Finance Agency parked tens of millions of dollars raised for major projects, such as the relocation of Interstate 195, known as the Iway, and the Narragansett Bay Commission's underground tunnel project, in AIG investment accounts known as Guaranteed Investment Contracts. The notion: The money would earn money until it was needed for whichever project it was raised. DOT has approximately $91 million in one of these AIG accounts; the clean-water finance agency, another $40 million. Caprio said it is possible a number of cities and towns also have money invested this way. DOT spokeswoman Dana Nolfe referred questions to the governor's office on the potential impact on DOT operations if the agency is unable to access the $91 million invested. There has not yet been a response. But Anthony Simeone, executive director of the clean-water finance agency, said his agency's financial advisors contacted AIG today to ask for the return their money, "because the word on the street was ...(that) if something significant did not happen with regard to an infusion of cash, they might consider gong into bankruptcy.'' As of late this afternoon, Simeone said his agency had not gotten a response. Simeone said the money his agency has invested with AIG is money received from the federal Environmental Protection Agency that his agency uses to subsidize -- which in this case, means make up the difference -- between what the clean-water agency pays to borrow money for major drinking water and waste-water improvements and the discounted rate at which it then loans that money to cities and towns and water suppliers and the operators of waste water treatment plants. "We buy money at a certain interest rate, and we loan it to these communities at a subsidized rate,'' he explained. As to what would happen if his agency could not access the funds easily, he said: "At this particular point we are not quite sure in the sense we are in unchartered territory right now...We were surprised at the velocity with which this took place. Friday (we) went home. It was just another week. Monday morning it was like, what happened?'' In a statement issued today, AIG said: NEW YORK--Sept. 16, 2008--American International Group, Inc. (AIG) today said that AIG's life insurance, general insurance and retirement services businesses, including its extensive Asian operations, continue to operate normally and remain adequately capitalized and fully capable of meeting their obligations to policyholders. AIG continues to pursue alternatives to increase short-term liquidity in the parent company. Those plans do not include any effort to reduce the capital of any of its subsidiaries or to tap into Asian operations for liquidity. 
CommentsLeave a commentPlease be civil. Vicious comments, personal attacks and profanity won't be published. Name and email are required; email address will not publish. |
New comments
New photos
New posts
Projo blogs
Archives
I thought Caprio was suppose to be a smart finance guy? Then why does he put any faith in the state of Greenspan's "a once in a century type of financial event".
Has he not heard of the Crash of 1929? Black Friday? And a host of other cataclysmic events that shook Wall Street to its timbers?
Let AIG fail, let Lehman Bros. fail, let Fannie Mae, Freddie MAC and all the rest who let greed run their fundamental business.
I could care less is the State were to lose the $130M dollars. It seems to me that big companies run themselves on the brink of disaster on a daily bases because they know they'll be bailed out by guess whom? Yup, the good old tax payers.
Say, didn't I hear the top dogs at Lehman Bros. will still be able to collect their multi-million dollar bonuses?
Report Abuse
Was this smart investment made by the DOT financial chief who was so great that he was elevated (without interviewing any other candidates) to state comptroller despite a complete lack of public finance experience?
Report Abuse
So our tax dollars were invested, directly or indirectly, with a company whose financial statements were famous for their lack of transparency...??? Ridiculous.
Report Abuse