Bailed-Out AIG Forcing Poor to Choose Between Running Water and Food

What are we getting in return for the bailout? So far, predatory credit card rates, exorbitant bank fees and obscene Wall Street bonuses. But we're being robbed in other, sneakier ways, too. It seems that taxpayers in the poorest, most vulnerable parts of the county are getting plundered by the same institutions they bailed out. One example is AIG's underhanded fleecing of residents of rural Kentucky.

Middlesboro and Clinton are two tiny, impoverished towns in southern Kentucky with a combined population of 12,000. In 2008, Middlesboro's per capita income was $13,189 a year, only a few hundred dollars more than the average worker earned in third-world Mexico. That is if they were lucky to even get a job. Real unemployment hovers somewhere around 30%, and the state is so broke that half the people eligible for unemployment benefits can't receive them. Life may be tough and most people live in poverty, but that doesn't mean they can't be made a little poorer. That's the lesson locals learned after bailed-out insurance villain AIG took over their water utility and instantly raised rates to squeeze an extra $1 million in profits out of its new customers, forcing some to consider choosing between running water and food.

The towns are so rural, their residents have yet to be touched by the Internet revolution. Forget comment sections or forum threads. In Clinton, you have to track down actual hand-written notes that residents filed with city hall to read their complaints about the rate increase. Luckily, city officials were nice enough to scan some of them.

Here's one, dated August 8, 2009:

My husband and I are on a fixed income and with everything going up in price this would be very a very large burden on us as well as most of the citizens of Clinton. Our town is mostly of people like us and this would be such a hardship for us. A 50.8% raise is outrageous on anything. Please do not let this happen. It would mean the difference in bringing buying food and medicine or paying a high water bill to make someone else's life easier.

Here is how the AIG takeover went down: In 2005, flush with cash from its shady dealings in the mortgage derivatives market, AIG announced that it was in the process of acquiring Utilities Inc., a holding company that controlled scores of small water utilities across 17 different states. With just 300,000 customers, the company wasn't huge, but it boasted of being the largest privately held water utility in the country.

"We have long considered water infrastructure as an attractive investment opportunity and an excellent complement to [our] existing energy infrastructure portfolio. Utilities Inc. is a leader in this industry and we are pleased that [we have] the opportunity to acquire this business,” AIG Chairman and CEO Win J. Neuger gloated in a press release.

AIG had reason to be pleased with its purchase. Water utilities are one hell of a profitable business, with international corporations easily making a 20 to 30% profit margin, according to a 2007 report by Food and Water Watch. In the US, federal regulations limit profits to 10%, a pesky rule that companies easily subvert by shuffling their income around and “investing” it in side businesses. These kinds of returns would be the envy of the pharmaceutical and oil industries. How do water companies do it? According to Food and Water Watch, they charge 50% more for services than public utilities and pocket the difference, thereby unleashing the potential of the free market.

People who have been ripped off by bailed-out banks' schemes to trick late fees out of their customers will recognize what Utilities Inc. did to the people of Middlesboro and Clinton. In the summer of 2008, as AIG was teetering and desperate for funds, it "upgraded" its billing system, and suddenly a slew of late fee charges hit the struggling locals.

Residents had been getting their water bills like clockwork for as long as anyone could remember, but confusion and disorder set in as soon as Utilities rolled out its new and improved billing system. Monthly statements started coming late or didn't come in for months at a time. People were double-billed and double-penalized for bills that never arrived. One month, a bill would include sewer fees, the next month it wouldn't—and you'd be charged if didn't catch the omission. It's obvious the new invoice system was designed for pure harassment, creating chaos and reaping the rewards of the late fees it generated.

Internally, Utilities referred to their revamp of the billing system as "Project Phoenix." It sounded eerily similar to the CIA's "Phoenix Program," which was designed to terrorize, kill and torture uppity Vietnamese villagers into submission during the Vietnam War. One month after Project Phoenix started wreaking havoc on locals, AIG collapsed and took the first of over $150 billion in taxpayer bailout funds. That meant Project Phoenix could still go on terrorizing locals—which it did.