Government Bailout for AIG

Ah crap.

Someone needs to go to jail. This is *utter* crap for the tax payer. Should we be starting with the Feds doing the bailout?

I almost don't want to know what political candidates are saying about this. Are any saying that these bailouts are a crime against the taxpayer?
 
Scanning over the terms of the deal, I actually think the government did an OK job on this. They really stuck it to the AIG shareholders. I even watched late last night some wallstreet suits whining about how the government is taking advantage of the situation and should not be in the business of owning other businesses... I say kiss my ass.

AIG got a 2 year loan that is 3-month LIBOR + 8 percent or so which is like pawn shop rates. But this is the great thing... The US government hired Morgan Stanley and got an 80% share of the company's stock which basically wipes out the current share holders (dilutes them to nothingness) and makes the taxpayer essentially own AIG. The current market cap of AIG crashed to about $10B but it used to be about $200B last year.

If the plan works, the government could more than double their money (I should say "our money") in two years as they sell these newly allocated shares on the open market once the company stabilizes. The company has a lot of assets (like $1T... that's $1,000,000,000,000) reported by the news but the news did not report they have $930M of liabilities so the company has a book value of about $70B if the assets were liquidated for the value represented on the balance sheet. Companies are always worth more than their book value (well... healthy companies are) so with the preferences on the bridge loan (i.e. taxpayers are first in line to get their money back if there is a bankruptcy now), it appears to be a safe bet.

Screw all the people that say the government was too aggressive on the terms and shouldn't behave this way. Ain't no more free money... Just expensive money... very expensive money... sorta like asking a Venture Capital group for money when you are broke... only worse... This is a case of "what goes around comes around"...

The other approach of letting them fail probably would have been very bad. Bankruptcy trustees liquidate assets as fast as they can and dumping $1T of assets in the market would hurt all of us. I still think that commodity prices and such will continue to fall as they sell $80B+ of stuff on the open market... Actually, to get $80B net they will probably have to essentially sell off all the pieces anyway. They'll need someone like Richard Greer's character in Pretty Woman.

The deal is pretty simple... If they liquidate the entire company in an orderly fashion over the next two years and only get book value for the pieces, the government basically gets their money back. Anything greater than book value and the government gets an 80% cut of that.

Politically this will not be reported this way as I don't think the person on the street corner will get it... it'll be referred to as "government bailed them out with free money" but, on the surface, looks like a good deal for the tax payers. Hell... maybe we can balance the budget by taking advantage of all these greedy bastards.

My 2 cents.

Oh yeah... the old CEO and management should go to jail.
 
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I have to agree with Gary on this one. I don't like it, but it's not a terrible deal. Someone in government wasn't stupid this time. The only thing missing is sending in the auditors and analysts to find criminal wrongdoing so the perpetrators can be prosecuted.

Best regards,
Frank
 
Well said Gary. I am glad someone does some research before posting, what a concept.:thumbsup:

This one would be worth some Green Balls but the topic is in the “Holding Tank”.
 
Yeah, it seems like they did this one right. If they'd have let them go, I think the market (and I'm not any kind of a market weenie by any means) would have tanked. AIG's 1T$ just would have been to much for it. The good thing, is as Gary said, they put some teeth in the agreement, and we could end up on the good end in 2 yrs on it. I still think they should have some sort of ruling against the people running AIG, but I'm afraid whoever they put in their place wouldn't be any different.

-VtSeaRay
 
The only problem I see is that the federal government has control of the money and you know they are going to use it where they want and probably we the taxpayers will not benefit in the end, hopefully that will not happen.
 
It's not a bad deal for us, if they stay solvent. If we're just throwing good money after bad, then it's another story. Why are these big businesses failing? 'Cause they made bad loans that could not be repaid. Makes you think.
 
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This reminds me a little of the deal the government did back in the '70s when they bailed out Chrysler. If my dim memory serves me correctly, the taxpayers got their money back on that deal and made a profit for the Treasury (us taxpayers), too.
 
postscript: I worked for AIG as a systems consultant a while ago('93-'95 timeframe) - trust me, they know how to make money. The group I worked for was a subdivision(? separate comany - Not sure of the legal term for how they were related with the parent AIG) that did hedge funds. They should be able to get back on their feet, with no problem, once they get their ducks lined back up.
ah... that was a fun project.:smt038:smt024

-VtSeaRay
 
Wow Gary, Thanks for the scoop...
All I know is that Monday evening after fearing the domino effect with AIG, I felt like throwing up and had to turn the TV off. Hearing someone give them them 48 hours to fold scared the crap out of me. There is no way the market could have held that. NO way!!! That would have been in uncharted waters having them fold... I believe they were at 1.1t last quote I saw...
Good or bad "deal", I'm just glad to see them stay around long enough to filter through all the crap they created... In my gut I hope we used some joint money from all the 180+ counties that would have hurt directly, but I'm not holding my breath....
 
Actually the deal is 850 basis points over LIBOR, so it is nastier than Gary reported. Here is the link to the Fed press release:
http://www.federalreserve.gov/newsevents/press/other/20080916a.htm

Keep in mind that AIG has some pretty hefty and desireable assets. It owns ILFC one of the world's largest aircraft lease and finance operations owning over 900 commercial aircraft and managing another 100. ILFC is also both Boeing's and Airbus' single largest customer.

AIG Commercial Equipment Finance, their non aircraft financing operation, is rated among the top 100 global leasing companies with a sizable portfolio of hard assets (ships, railcars, trucks, trailers, marine terminal equipment, medical equipment, etc.).

In the equipment leasing and finance world, asset volume is king. So there will be no shortage of potential qualified buyers looking to acquire portfolio assets. These buyers will be looking to gain market share over the leaders GE and BofA.

As Gary points out an organized sale of assets will lead to the best deal for the company. All in all this could turn into a pretty good deal for the taxpayer.
 
Gary your comment about the Media is died on.

Pelosi: Bush is bad manager 1:00
The Speaker of the House says AIG's $85 billion rescue is symptomatic of President Bush's bad management.

But when you go to play the video it say it has expired and select another one what a joke.
 
Scanning over the terms of the deal, I actually think the government did an OK job on this. They really stuck it to the AIG shareholders. I even watched late last night some wallstreet suits whining about how the government is taking advantage of the situation and should not be in the business of owning other businesses... I say kiss my ass.

AIG got a 2 year loan that is 3-month LIBOR + 8 percent or so which is like pawn shop rates. But this is the great thing... The US government hired Morgan Stanley and got an 80% share of the company's stock which basically wipes out the current share holders (dilutes them to nothingness) and makes the taxpayer essentially own AIG. The current market cap of AIG crashed to about $10B but it used to be about $200B last year.

If the plan works, the government could more than double their money (I should say "our money") in two years as they sell these newly allocated shares on the open market once the company stabilizes. The company has a lot of assets (like $1T... that's $1,000,000,000,000) reported by the news but the news did not report they have $930M of liabilities so the company has a book value of about $70B if the assets were liquidated for the value represented on the balance sheet. Companies are always worth more than their book value (well... healthy companies are) so with the preferences on the bridge loan (i.e. taxpayers are first in line to get their money back if there is a bankruptcy now), it appears to be a safe bet.

Screw all the people that say the government was too aggressive on the terms and shouldn't behave this way. Ain't no more free money... Just expensive money... very expensive money... sorta like asking a Venture Capital group for money when you are broke... only worse... This is a case of "what goes around comes around"...

The other approach of letting them fail probably would have been very bad. Bankruptcy trustees liquidate assets as fast as they can and dumping $1T of assets in the market would hurt all of us. I still think that commodity prices and such will continue to fall as they sell $80B+ of stuff on the open market... Actually, to get $80B net they will probably have to essentially sell off all the pieces anyway. They'll need someone like Richard Greer's character in Pretty Woman.

The deal is pretty simple... If they liquidate the entire company in an orderly fashion over the next two years and only get book value for the pieces, the government basically gets their money back. Anything greater than book value and the government gets an 80% cut of that.

Politically this will not be reported this way as I don't think the person on the street corner will get it... it'll be referred to as "government bailed them out with free money" but, on the surface, looks like a good deal for the tax payers. Hell... maybe we can balance the budget by taking advantage of all these greedy bastards.

My 2 cents.

Oh yeah... the old CEO and management should go to jail.



I have to say I do not like it, but it is the old "between a rock and a hard place." :huh:

It is going to have to start some place, sometime. But the gov-mint needs to let the chips fall where they fall. Let the free markets establish who plays in the arena.

"...They really stuck it to the AIG shareholders..." If this just applied to the big individual share holders within the company I am in total agreement, but I wonder how many mutual funds held shares, and no I am not going to go on line and research who the major stock holders are with AIG, as this would show which funds held any shares

"...in two years as they sell these newly allocated shares on the open market once the company stabilizes..." Are they going to invalidate the old shares completely, or will there be a transfer of old for new shares? if it is all new shares, then if any mutual fund investors were involved, then possibly many small 401K and IRA investors are at a lost

Like I posted the other day at this thread I have watched my investments for the past two years dwindle like in my example. I will be 59 next year so just how long/if/or when, might one maybe have to wait just be to back to the break even point? (I had no choice I had to put some money cash into IRA or else pay penalties and have the maximum tax amount withheld etc.)

So let’s use the $100,000.00 figure again, probably 30% taxes withheld, and then there is the10% penalty (I do not know if they deduct penalty then tax or apply them both to the $100,000.00 evenly, $30,000.00 withheld for taxes and $10,000.0 withheld for the penalty.)

So like I started this comment with “I have to say I do not like it, but it is the old "between a rock and a hard place.” I just hope somehow this mess will pass.

And who talks about putting Social Security into the stock market? As I see it, we would be right back having a gov-mint retirement system


I do not watch it everyday, but lets say you had deposited $100,000.00 two years ago and had checked about every three to four months, tried different diversification methods (even professional investment management), and this $100,000.00 was now only $80,000.00. Giving the way the economy is, this election fiasco coming up, just where do you think the market is going to go? When two, three years? One might be lucky to be back to their $100,000.00. So the markets do not look good, and I would say they would not be for quite sometime. :huh:

So try applying the Rule of 72 in today’s market and see how long your investment will take

Rule of 72

"Oh yeah... the old CEO and management should go to jail." My feelings on this are it should be at least mandatory life imprisonment without parole.
 
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This is all very scary IMO. If a company this large can be in this position, what about the others?
 
They're bent over, too.
 
I just read that the feds only have 50billion to cover something like 2 trillion in deposits. so much for FDIC. Looks like they're leveraged more than the companies they're bailing out. Nice.
 
I believe the feds have the operative saying with regards to the money supply, "Don't worry, we'll make more."

Best regards,
Frank
 
There's very good news out there even outside of the financial/investment firms. GE has lost $250BILLION in market share over the last 12 months! Down 10% today. Any company with a foot in the CDO market is getting hammered right now...
 
AIG's problems stem from the real estate market. In large part they provided insurance covering losses over financing defaults. This covers not only insuring the sub-prime mortgage lenders (to whom they were the leading provider of insurance), but also most of the financial institutions on the planet. The collapse of the sub-prime gives them one hit. Ironically this insurance is often referred to as 'Bankruptcy' insurance when the insured item is a company, and not a transaction.

Because insurance companies have to have asset based reserves to cover their payouts, insurance companies invest in asset based industries, hence AIG's big stake in the equipment leasing industry. But they also invest in real estate, and that's the second hit. Once their asset base starts eroding through devaluation, the devaluation has to be made up with additional assets, like cash.

These problems also highlight why it is in everyone's interest that AIG stay functioning. Without the default insurance coverage most financial institutions would have to simply give up lending. It is also common for manufacturing companies to carry the same type of insurance on key suppliers, so the impact would be felt negatively across the whole economy going forward. And the thing to remember is that as AIG liquidates assets, it will be orderly paying out settlements to its customers. So in effect it and it's shareholders will be paying for the mess it helped create.

And because AIG was the leader in the field, the odds of someone else going down for this reason are hopefully low.
 

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