AIG's Catastrophic Miscalculation

The December Webcast included a lot of numbers that were miles off, and the error will go unpunished.
By Jim Cramer ,

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Over the weekend I went through the December analyst meeting Webcast from

AIG

(AIG) - Get Report

. The whole presentation, the teach-in day, was devoted to one issue: how AIG was a capital-rich insurer with potential losses that, worst case, could never amount to a billion dollars. Repeatedly the company indentified the worst case, repeatedly saying it was so minuscule that you could only think that this company had it totally under control.

The presentation was amazing in its exactitude. You saw that the company owned only very small percentages of super-senior securities that would take defaults pretty much equal to those of the Depression to even begin to impact AIG's capital. The precision of the calculations made you doubt that this company had any real exposure to the problems facing so many banks.

In reality, it had among the worst exposure of any of them. The whole analyst day analysis was so deeply flawed that it is almost impossible to pull it apart to see what went wrong.

Today we see the total bill: AIG needs $20 billion in capital. Twenty billion!

How can the company have been that wrong? How can management not voluntarily step down? How can you be wrong by $20 billion? That's not a rounding error. That's a catastrophic miscalculation that can't be explained or understood when you consider the presentation. I just don't get it. It's incomprehensible.

Yet everyone just figures, "So be it. It's a big mess. Of course AIG's getting hit."

And because of that complacency, the board gives Marty Sullivan a complete vote of confidence.

I find all of this so discouraging, especially when you consider -- as is becoming quite obvious -- that the actual foreclosure numbers,

so far

, are nowhere near as bad as the cumulative losses that the institutions are taking; the portfolio of AIG, at least as it was stated in December, couldn't possibly have that kind of exposure.

Here's what should happen. The

SEC

should get that presentation and match it against the statements raised in conjunction with the fund raising. Some action must be taken here. If AIG can get away with this kind of misstatement, then what is the point of enforcing any statements by management? When I look at the nitpicking the SEC gives on regular quarterly reports and I consider these colossal misstatements, I figure that if you make the mistakes big enough you get away with it.

This one's the worst travesty of all, worse even than

UBS

(UBS) - Get Report

. But no one loses his job and Maurice Greenberg's protests just sound like so many sour grapes.

It's astounding it all went down like this.

And yet people will give the company money. In this era, there is always money. No one gets winnowed out. Every company stays in business except

Bear Stearns

(BSC)

. And the agony takes much longer than if we just had the closings and consolidations that amount to a purge of the ne'er-do-wells and a fresh start for everybody else.

At the time of publication, Cramer had no positions in the stocks mentioned.

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for

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