Kin, why do you say the government is buying an 80% stake? The way I read, it's a loan with assets as collateral to be paid back during a period of 2 years at an interest rate. Where's the purchase? AIG will have time to sell off what it needs to without the market preying on it. The locusts will just have to move off to another company. There are plenty left.
Why didn't Bush just say AIG is insuring weapons of mass destruction and just send in the troops to take it over.
Well you are right it is not a sale of stock to the government but rather AIG is giving the government a 80% equity stake as collateral on the loan. As long as AIG can pay off the loan and meets interest paymetns the government does not have take full ownership of the collateral. It is a pledge of assets to a bank as collateral for a loan. But still quite unprecedented and if AIG goes under or fails to generate funds to pay off the loans, the government pretty much owns a worthless piece of shit and writes down the losses that taxpayers pay for. Shitty deal for the government and us despite the benefits of avoiding systemic market collapse. We should pretty much look at it as a government hand out of billions that AIG will default on. Who really thinks the govt will ge repaid on this facility? AIG will simply go under and the loans will be lost stupidity.
I honestly don't read it that way. The loan is collateralized by all the assets of AIG and its subsidiaries. For the privilege of getting this loan, the U.S. government is getting a 79.9% interest. Other reports are saying the government has taken over AIG. That would not be true unless they had the equity interest. But who knows.
Doesn't AIG have something like 1 Trillion in assets? Wouldn't the government just take some of that if it were to fail? I doubt Paulson agreed to this loan without understanding what plan AIG had for selling parts of the business.
My understanding this was a lend and collateralize first and worry about ability to pay after otherwise AIG would be in serious trouble. Happened so fast like the MER and BAC deal cannot imagine all the details were ironed out so cleanly as a non-pressured deal like this could take weeks to perform due diligence. 1 Trillion in assets? What about almost 1 Trillion in liabilities with untold losses reducing that gap further. Check out AIG's currnet ratio, they have negative working capital which means they are working on fumes and technically bankrupt. This is a hail mary IMHO. Pray AIG can stave off the vultures and salvage some value to save the markets or simply delay the inevitable. My prediction is that AIG is going to be picked apart no matter what and is history before Thanksgiving.
If any of these bankrupt companies had net assets, they wouldn't be bankrupt. 80% stake here, sub triple A (no recourse) loans there. Its all bullshit. This thing is going to end up worse than Japan. People living in a storage box because the bank foreclosed on their cookie-cutter Mansion... Whats the solution...carry each bankrupt corp a few days, let counterparties net trades like Lehman, then let them file. Forget it. This stuff is lasting too long and is super stag-flationary.