AIG’s Deep Hole
AIG has a huge hole to dig out of.
A bet on AIG is a bet that they can keep their largest shareholder happy. Who is that, some might ask? It is we, us, you, me, the U.S. Get it? I have issues with the government’s involvement in private companies. They don’t have a clue how to run them!!
By government, I mean politicians. Most politicians are narcisists who love the spotlight and the big picture story that they get to tell. Give them a hot issue and they are all over it. That might explain part of the reason that the politicians were holding hearings regarding steroids, with Mark McGuire and Rafael Paliero, rather than getting into greater depth with the potential risk that Fannie and Freddie might expose everyone to.
To date, AIG has been given cash, loan guarantees, etc. of $180 billion.
The US is currently holding a 79% equity stake in AIG. AIG is selling off assets to pare its debt and raise cash. The auto insurance unit ended up with 21st Century Insurance and their Tokyo office builing is in the hands of Nippon. NY headquarters anyone?
AIG needs to Dig!
The AIG Financial Products unit (AIG FP) created this mess that the taxpayers are now involved with. Thanks Hank Greenburg! Mr. Greenburg sat in front of congress and claimed that these weren’t things that he put in place, but the AIG FP unit that he created brought this company to its knees. The CDS exposure that this unit took on was staggering in scale. The unit exposed the company to more than $60 billion in risk. The sales people that brought in the deals, made loads of cash without a long term view of the exposure that the bankers (FP guys) were exposing the company to.
To pay back the entire amount provided by the government and get themselves out from under the risk that they took on, they will have to hit on all cylinders.
This story will be going on for years.
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