Tuesday, February 24, 2009
AIG in talks with U.S. government, sees $60 billion loss
Despite receiving over $85 billion from the federal government, AIG is making news again for its failure to do much with that money. I find it reprehensible that they will stand to lose over $60 billion for the 4th quarter considering that our aid was supposed to get them back into sustainability. Do we really want to invest more in a company that has lost consumer confidence and seems to lack the necessary leadership and organization to get itself of trouble? The problem is that we have already invested a significant amount of money and to let this insurance giant go bankrupt would be a tremendous disservice to Americans whose taxes were pushed through to this company.
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3 comments:
AIG still has massive amounts of toxic debt that will continue to erode their balance sheet. It really has nothing to do with today's management or leadership. Current problems are brought about by decisions that were made a while ago.
Consumer confidence does not apply to AIG. AIG is distant from consumers. You do not go to the AIG store and buy AIG products.
We are not walking away from AIG because letting AIG fail is not an option. It really has nothing to do with sunk costs.
Looking ahead we need to make plans to avoid a situation like this in the future. As painful as it is, right now we need to be pragmatic.
Cosumer confidence absolutely applies to this situation considering that it is a publicly traded company on the stock market. If people do not believe in the future progress the company will make then the stock will continue to plummet and be worthless for the government to save.
As far as the organization and leadership of the company today, this relates to how well they can rid themselves of the problem they created accumulating that toxic debt you speak of.
Consumers consume.
Investors invest.
A low AIG stock price really does not matter at this point. The US government already owns massive amounts of preferred shares and warrants. Basically the US has a contract to buy common stock of AIG at low prices that were locked in when the preferred shares were bought.
If the government has to increase its stake in AIG by buying more stock a low AIG stock price is good for 2 reasons.
1) The US government is exposed to less risk.
2) There is a greater potential for profit on government investments in AIG.
Finally, organization and leadership. The entire problem with toxic assets is that a bank cannot just "rid" itself of them. They are completely illiquid and thus 'toxic'. No one is buying them so banks that do own them are stuck. This is why the government is involved.
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