Dear AIG and Citicorp Shareholders (and soon to be GM and Ford shareholders):

Shareholder, happy days are here again. You now own stock in both AIG and Citicorp. Just before Thanksgiving, as shares in Citicorp traded for less than a six pack of Keystone Lite, the Bush administration extended a $25 billion line of credit to the beleaguered behemoth of Wall Street. And we are lucky to also guarantee $306 billion of Citicorp’s bad debts.

Your investment in our companies has increased from an initial $85 billion to over $175 billion in fewer than 100 days. Some old Lefties remember the first 100 days Franklin Roosevelt was in office when he created such wasteful entities as the Civilian Conservation Corps and the Tennessee Valley Authority. This was the guy who uttered such lefty talk as “Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.” (Even dafter he said, “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself.”) Can you imagine such socialist rhetoric? And he said these outlandish things during his first inaugural speech!

Rest assured, we have far outspent Roosevelt and his New Deal dingbats in just our first 100 days. ABC News has estimated the current costs of all the recent bailouts: $8.5 trillion. No wonder “bailout” was named the 2008 Word of the Year by Merriam-Webster’s Collegiate Dictionary. At $8.5 trillion I would hope we get at least that. To put this into perspective $8.5 trillion is 62 times the $136 billion (in current dollars) we spent on the Apollo Manned Space Program.

 At Thanksgiving, the American public was invited to cast its vote to name the 2008 Thanksgiving turkey for the White House. Among the choices offered were “Dawn and Early Light,” “Yam and Jam,” “Roost and Run,” and “Pumpkin and Pecan.” Some wise guy offered the names of the two giant financial instutions in which you now own stock in as the biggest turkeys of 2008: “Citicorp and AIG.”

Thankfully, President Bush chose “Pumpkin and Pecan” as the 2008 Turkeys of the year and granted them both an unconditional pardon. According to the White House transcript of the pardon event, the President  joked to the crowd, “Pumpkin is right there. Pecan is in an undisclosed location.”

Citicorp!

Allow me to introduce you to the important role Citicorp has played in American financial history. Citicorp owns Citibank, originally named First National City Bank. This venerable Wall Street firm which dates back to the 1800’s played a giant role in the stock market crash of 1929.

During the 1920’s, Citibank and its stock subsidiary, the National City Company, had 2,000 brokers selling stocks, not only to the rich, but also pioneering stock sales to the general public. National City (Citibank) also innovated stock buying on credit. In 1929 Citibank’s brilliant idea worked like this: you could buy 1,000 shares of Bad Idea Corp. trading at $10 per share with a total purchase price (not including Citibank’s commission) of $10,000. And you could buy it on credit with only 10% down, or $1,000.

If Bad Idea Corporation’s stock rose to $11 per share, that meant you made $1,000 and doubled your money. If the price of Bad Idea Corp. fell to $9 per,  you lost your entire investment. And if the price of Bad Idea fell to $5 or $6, you not only lost your entire investment, you owed your broker (Citibank) thousands of dollars and were wiped out.

The is exactly what happened during the Crash of 1929. At the time, regarding the CEO of National City, Senator Carter Glass said. “Mitchell, more than any 50 men is responsible for this stock market crash.”

Better still, you are now a shareholder in a firm with impressive credentials: Citibank has an illustrious history in repackaging bad loans. According to the archives at the Federal Deposit Insurance Corporation (FDIC), in the 1920’s “National City Company repackages bad Latin American loans from its affiliated bank and sells them to unknowing investors as new securities.”

Yes, my fellow shareholders, just as we repackaged our securities and called them derivatives, Citibank repackaged its bad debt during the 1920’s and sold it the trusting public. According to the FDIC, it was Citibank’s repackaging bad debt – more than anything else – that led Senator Glass to coauthor the Glass-Steagall Act, which precluded all banks, including our Citibank, from underwriting securities for over 50 years.

Thankfully, fellow shareholders, Citibank and others spent a decade and $300 million in lobbying efforts to abolish this Leftist New Deal constraint. In 1999 it was repealed. (The Glass-Steagall Act also created the FDIC, which insures bank deposits, and currently remains in place). The repeal of this constraint to free market capitalism allowed companies such as ours to engage in all sorts of new and innovative businesses.

With the shackles of Glass-Steagall gone, Citibank was again free to underwrite securities, buy insurance companies, and buy stock brokerage firms. As a shareholder in Citicorp, you now own $20 billion of Citi’s preferred stock and will guarantee 90% of the loss of Citi’s $300 billion toxic loan portfolio. In the old days we called these securities “bad debt,” then “junk bonds,” and now “toxic loans.”

Rejoicing the investment you made in Citibank, President Bush told Treasury Secretary Paulson, “Mr. Secretary, thank you very much for inviting me in for a cup of coffee.”

AIG Update

Shareholder, our other CEO Ed Liddy has offered to work for $1 a year. Maybe we can just give him a share of stock? Liddy did reserve the right to be paid in equity credits however.

Our beloved former CEO, Maurice Greenberg has taken the gnomes of  finance to task in a recent Wall Street Journal editorial, decrying the Fed’s actions as “punitive” for lending us money at 14%.

On this point we must disagree with our respected visionary. We could have borrowed money at the payday loan store at 600% interest like other high-risk customers, so 14% isn’t so bad.

Our beloved Mo, as we like to call him, unfortunately was forced out of office several years ago by then New York State Attorney General Eliot Spitzer. While AG, and later as governor, Spitzer was a zealot who crusaded against what he thought were the excess of Wall Street. We were not at all unhappy when Spitzer’s driving behavior, risk-taking and lack of self-discipline for a $1,000 an hour prostitute forced him to resign. Talk about chutzpa!

Rcently the sanctimonious Spitzer continued his diatribe against Wall Street,  writing in the Washington Post, “The reality is that unregulated competition drives corporate behavior and risk-taking to unacceptable levels.” Spitzer further criticized us for a lack of “self-discipline.” Moxie, moxie, moxie! Spitzer really does know what he is talking about when making pronouncements regarding self-discipline, driving behavior and risk-taking to unacceptable levels. In fact he’s an expert on such matters – just ask Mrs. Spitzer. Here at AIG, we like to call him “Client #9.”

Last month, I predicted that some of our talented AIG employees might find the corporate culture at the NY Fed alluring. Well, those dogs from defunct Bear Sterns beat us to it. In November, Michael Alix who had worked at Bear Sterns as head of credit risk management, before the firm collapsed due to poor credit risk management, was hired by the NY Fed as senior vice president in the bank supervision group at the Fed. No kidding, bank supervision! We at AIG and Citicorp wish him luck and hope his duties will include credit risk management.

So dear shareholders, while your AIG stock, at $1.80 per share, is still worth less per share than half a six-pack of Keystone Lite, your stock in Citicorp, at $7.25 per, can almost buy a six-pack of premium Sierra Nevada.

I predict that next month I will welcome you to the family of shareholders of General Motors Corporation and Ford Motor. Rumor has it the CEO’s of GM and Ford will drive to Washington this month to ask for money. Last month the CEO’s were a bit humiliated when it became public they each flew on individidual corporate jets to ask for a $25 billion bailout. As we always tell our new employees during orientation “Never take the jet when you want to jet with their money!”

As the 1990’s GM ad slogan for Oldsmobile intoned, “It’s your money: demand better.”

Another prediction for next month: automakers will ask for, and receive more than the $25 billion requested in November.

We all owe a big thanks to Treasury Secretary Paulson for making these investments possible As President Bush said it best, “And so, Mr. Secretary, thanks for your hard work. Appreciate it.”