One of Bermuda's leading economists has issued a stark warning to local employees of troubled reinsurer American International Group (AIG): start applying for new jobs immediately.

The author of industry handbook A Guide to the Economy of Bermuda and former CEO of the Royal / Dutch Shell Group, Robert Stewart, told the Mid-Ocean News that, despite any assurances to the contrary, local AIG staffers' jobs are on the line.

"The AIG nationalisation will have an impact sooner or later," Mr. Stewart said.

"AIG's Bermuda employees have their jobs now, but not for long. They'd be better served seeking a job as a waiter in a restaurant. If I was an accountant working at AIG, I'd be looking for another job."

Mr. Stewart, who was until recently the vice chair of the Bank of Butterfield board, believes that while AIG's approximately 200 Bermuda workers could soon face unemployment, other local (re)insurance staffers should feel relatively safe.

"There's been no evidence of bad management at other (re)insurance companies," he said. "AIG was taking huge risks with other people's money."

Another respected local economist, Bermuda College lecturer Craig Simmons, echoes Mr. Stewart's warnings but adds that AIG's troubles will have adverse effects on the island's international business sector as a whole.

"If AIG implodes, the impact of that implosion on other firms within the local financial services sector would be profound," Mr. Simmons told the Mid-Ocean News.

"The financial services sector employs over 3,000 people; business services employ over 3,500 people; and banking over 2,000 people. This amounts to a quarter of the labour force and perhaps as much as half of all employment income."

AIG has been the subject of countless headlines this month since it became one of the most high-profile victims of the credit crunch. After posting total losses of $18.5 billion over the last three quarters, AIG was bailed out with what the company calls a "revolving credit agreement" by the US Federal Reserve.

While much has been made of the US Government's rescue effort, the Federal Reserve felt justified in the purchase: by protecting AIG, it was insuring other deals made by banks or large companies that could have resulted in a knock-on effect.

AIG declined to respond directly to Mr. Stewart's comments, but sent the Mid-Ocean News a transcript of CEO Edward Liddy's Monday interview with CNBC in which he called the company's core insurance business 'strong', 'powerful' and 'sacrosanct'.

One local reinsurance CEO who declined to be named agrees in principle with Mr. Stewart's assessment of AIG's future in Bermuda, but blames years of bad management for today's crisis.

"Robert Stewart may be right about the prospects for AIG employees in Bermuda, but their outlook appears to have been badly damaged by the actions of AIG during the very long tenure of former chairman and CEO Maurice (Hank) Greenberg," said the CEO, a longtime local businessman with close connections to AIG.

"It has been alleged that AIG used its subsidiaries in Bermuda and other places to effect transactions which were subsequently found to be in contravention of accounting regulations," he added. "AIG paid a massive fine rather than contest the matter."

As well as issuing a warning to AIG's Bermuda staff, Mr. Stewart spoke out about this week's other controversial business story: Senator Barack Obama's condemnation of the island's tax status. The Illinois senator issued a television ad criticising rival presidential candidate John McCain for making a promise to protect Bermuda's (re)insurance industry during a 2007 visit to the island.

The economist downplayed Sen. Obama's threat to close the tax loophole as political rhetoric.

"Politicians rarely make good on their promises," he said. "We should all regard them as unprincipled liars. Would Obama like to make good on his promise to close the tax loophole in Bermuda? Probably, yes. Will he do it? It would take some time to do it – more than four years. Kerry said the same thing four years ago."

Mr. Stewart believes Sen. Obama's policies echo those of US wartime president Franklin Delano Roosevelt, who, he jokingly suggested, would make a good 'hero' for the upcoming National Heroes' Day holiday.

"Obama has a socialist way of thinking," he said. "The policies he espouses at present are not terribly different from the old socialist ideas of 40 years ago. Obama would be taking the states down a path it hasn't taken since the days of Franklin Delano Roosevelt's New Deal. He really is a son of Roosevelt."

Mr. Stewart added: "FDR and [wartime British Prime Minister] Clement Attlee are the real national heroes for Bermuda. We should forget Lois Browne Evans and erect statues to the two of them. They created the welfare state and high taxation. Because of this, international business was born. People with money don't want to wait around for the taxman to pitch a shovel in their treasure chest. This blossomed into Bermuda's reinsurance industry. It was impossible for reinsurance companies to operate on a professional basis in the UK and the US."

He disagrees with recent local headlines claiming an Obama presidency could be disastrous for Bermuda. "Obama and his team are likely to screw up the economy in the US so badly that Bermuda will be the last thing on anyone's minds," he said. "Socialists are unable to understand how the economy works," he said.

The reinsurance CEO believes that Bermuda should indeed be very worried about the consequences of an Obama presidency.

"If elected, Obama is very likely to try to close offshore tax 'loophole' like Bermuda as a priority," he said. "Robert may be guilty here of wishful thinking. As a result of the corporate-friendly 'laissez-faire' approach of the Bush administration, the US economy is in its worse shape for generations.

"Any new President will be so hamstrung by the massive borrowings needed to prop up the financial disasters recently visited on the US and world economies (heavily aided by the deregulation supported by Bush and McCain), that a long period of austerity is almost guaranteed."

The CEO said that Obama's opposition to Bermuda as a tax haven simply follows a historical precedent. He added that the island's success in the international business sector has little to do with the wartime politicians Mr. Stewart cites, but rather owes to powerful interest groups in the US.

"Republicans, natural allies of corporate interests, have generally been supportive of Bermuda, on the grounds of tax competition. Democrats have generally opposed tax havens," he said.

"Mr. Stewart's knowledge of history is badly skewed by his political bias. From a US perspective, the success of tax havens may owe more to the very powerful Washington lobbyists for US corporations who convinced Congress to alter the US tax code to allow US corporations to take advantage of tax havens for the benefit of their clients."