Latest News and thoughts on the AIG Situation
From The Business Insider, March 2, 2009:This morning the government officially announced plans to prop up AIG with another $30 billion, deeming the potential systemic risk of a collapse to be too great. Perhaps we should stop calling this a bailout of AIG, which, after all, has seen its stock killed. It's basically worthless. It's the company's counterparties that are getting bailed out each time.
Everytime AIG has reworked its deal, we've been sure that it wouldn't be the last time, and again, it doesn't look like this will be either.
As significantly, the restructuring components of the government's assistance begin to separate the major non-core businesses of AIG, as well as strengthen the company's finances. The long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm. This will take time and possibly further government support, if markets do not stabilize and improve.
In other words, it's a matter of when, not if AIG's counterparties will need to be bailed out again.
From CNBC, March 2, 2009:
American International Group is being kept alive on artificial support from the government, and many other financial companies are in the same situation, Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC.
AIG's [AIG 0.49 0.07 (+16.6%) ] board approved a new rescue package that also includes more lenient terms on a government investment in its preferred shares and a lower interest rate on a government credit line, two sources familiar with the matter told Reuters.
"I think it's rather a series of redundant thoughts, because AIG is really no longer with us," Hendry said when asked about the chances of success of a new bailout for the insurer. "AIG is a ward of the US government, AIG's executives were naughty. They wrote naked (credit default swaps) and in the process they bankrupted the business."
"We live in a very strange, twilight period where we pretend that a lot of these financial companies are still with us. I think the reality is they left the business last year," Hendry added.
Banks' stock prices show that the markets think many financial institutions are bankrupt and the big debate is really how we bring down the debt supporting these companies, he said.
"Nationalization really provides for an orderly liquidation for what are insolvent institutions and I think we have to be willing to have that discussion," Hendry said.
He likened the situation in financial markets to a meeting of Alcoholic Anonymous, where the first step to redemption is recognizing the problem.
"If we had governments actually saying listen, the financial sector is insolvent, we would be on the first positive step to moving way from that situation," Hendry said.
