The AIG Bailout Money Pit: Is It Finally Being Done Right?

The American International Group has become a money pit for the United States government, Breakingviews says.

The insurance giant's new $150 billion bailout is bigger and looks easier on A.I.G. than its previous two facilities, in aggregate $123 billion, from the Federal Reserve. The package is better defined than before,the publication notes, but the increased potential burden on taxpayers is embarrassing for the Fed and the Treasury, it says. It underlines the need for regulation that catches any group that's too big to fail.

In structural terms, A.I.G.'s Bailout 2.0 looks like an improvement, says Breakingviews. It aims to solve the company's main problem -- the cash bleeding from its $400 billion credit-default swap portfolio -- by unwinding the worst of the instruments completely in a kind of "bad bank" separate from A.I.G.'s insurance businesses. It's doing something similar with a collection of dodgy mortgage-backed securities. In addition, the Treasury will invest $40 billion in preferred securities under its Troubled Asset Relief Program, and the New York Fed will replace its existing $85 billion credit facility with a new $60 billion loan with a much lower interest rate.

Read the full story here

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::The New AIG Bailout
::Transparency An Issue In AIG Bailout

Comments

[twofish]

Bullwinkle: Hey, Rocky! Watch me pull a rabbit out of my hat!
Rocky: Again?
Bullwinkle: Nothin' up my sleeve! (rips off sleeve) Presto! (Pulls out head of roaring lion)
Bullwinkle: I gotta get me a new hat!

We need a new hat, and a new head to wear it.

[Chubbster]

No.
It is really amazing what a few thousand unsupervised Masters of the Universe have wrought.
Don't forget, Henry Paulson wanted MORE leverage for his derivative portfolio while he headed Goldman.

[vandegrasse]

Deadbeat company. It and the government should be shut down and another Constitutional Convention held. Things are not as they should be. None of this was ever intended by the Founding Fathers!

[jacqmac]

This is where the Govt. HAS TO STEP IN! STEP IN AS IN TAKEOVER! SHUTTER THEM, LOCK THEM IN THEIR OFFICES AND TAKE OVER THEIR ASSETS!! NOW!! WHILE THERE ARE STILL ANY ASSETS-WHETHER "BORROWED OR REAL" TOTAKE!!
If it's 1932--Then Let the GOVT. ACT AS IF it is 1932!

[DundeeNatalSA]

And another thing - If this is how the "brilliant" minds work on this problem, we are guaranteed something far worse than another Great Depression.

Perhaps Bush isn't the only idiot at the top. But then again, there are many who believe Palin is smart, so I guess there are a lot of morons in power who make decisions that affect our lives.

Has AIG directly affected you? It has me. That's why I am so steamed because money that is due me from AIG for months has not been forthcoming. I guess the wheels turn slowly when you are drinking expensive vintage Champagne.

[DundeeNatalSA]

A - All

I - Into

G - Greed

Did you see them at their latest resort get together?? Outrageous! This is not smart use of our money. We are going nowhere but down with this approach!!

[azbernie]

ok: why not just change U.S.A. to A.I.G. . i mean that's where all of our moneys going. i say let them go under, all of them. then newer smart company's can open, where the money can be better invested. help the new business's. not the old, failing, can't- manage- money company's.
A. AMERICANS
I. INTERESTS
G. GIVEN AWAY.

[courageunderfire]

Hell, it just seems like they are TRYING to have a depression!!!! Where in the hell is the logic here?

[ChaiKat]

Great, instead of giving that money to the people that need it the most, they give it to the ones who caused this problem to begin with.

[vandegrasse]

You make too much sense. No one's going to listen to you.

[PT6]

Give the banks $3 Trillion and NOTHING!

$0 to Bleeding Homeowner Mortgages so banks keep collapsing and market TANKS!

Keep avoiding the ROOT Cause and it will be a DEPRESSION!

[piquet]

I wouldn't give out any bailout money until every officer in these companies are replaced and a federal arbitrator is placed on the board.
The way I look at it. This is an investment for the American people. We are part owners because we bought into their miserable companies. Why should they have complete control? They failed. I guarantee you put my straight down the middle sensibility in that room. I not unlike half of America(note- Not counting of course the "low information" types that voted for McFail and his dime piece or that 27% that still believe in the chimp) could easily filter through the BS stench of corporate double speak.
Is that what it's going to take? An onslaught of relentless pecking from us to expect the right decisions be made?!

[robertny49]

The morgage backed securities that AIG foolishly insured are part of the great ponzi scheme and much of thier content may be worthless. To call this a money pit enriching the powerful few is an understatement.
Now the government is going to set an new LLC in order to buy these worthless CDO's. Where this whole thing is going is not good!

[marijam]

The feds should bust up AIG into smaller companies. Period.

[klo]

Thank you. I was thinking that last week.
Since they have so many subs that are funded in accordance with the insurance rules of the states in which they are incorporated, sell off the fully funded subs into smaller more competitive, more manageable companies.
And let the parent company, where most the trouble was said to be, let them kick the bucket.
They have become a moneypit with no discipline and not enough scruples to right themselves.
If that isn't the solution, then for the $120B the US Gov't should get 1/3 of their board seats to which they can place non AIG compensated individuals whose job will be to oversee the uses of our bailout funds.
Isn't that what Carl Icahn does?

[Samalabear]

Second this. I agree you can just let it go bust, but it is definitely a money pit. It's frustrating when you hear people like Paulson say we think this is going to work this time, but we don't know -- I mean, really, this is not a game, folks. The Feds need to get into AIG and really get a grip on what's going on there. No outings, no bonuses, no parties -- even if they were pre-planned for a decade! Please, this is utterly ridiculous.

[gallimaufry03]

They are. That's what the "selling assets" talk is about. Assets are subsidiary companies that are right now up for sale.

[me again]

AIG needs a Federal regulator and team on-site. They keep on planning these luxury outings for their employees at 5 star resorts in warm weather destinations. Maybe a motel six, or Holiday Inn in a rust belt state near a closed plant would be more eye opening for their employees.

[gallimaufry03]

LOL ... I like that idea. The current head of AIG was named by the fed. He wasn't elected by the board.

In the meantime, the "junket" to Arizona was primarily underwritten by the products AIG sells (Oppenheimer, AIM, etc) and for the benefit of independent insurance salespeope who we want to keep selling our products so that we continue to have income.

[DinosaurAE]

Call me dense...but what would be the advantage for the government to take any kind of stake in AIG when what they sell has been discredited (Derivatives)...or are they continuing to build a bigger house of cards?

[gallimaufry03]

AIG sells a broad range of financial products spanning a LOT of separate companies. The CDSs were confined to a few people making decisions in one unit of the Finance company. Unfortunately, those decisions were risky and the gamble didn't pay off when people stopped paying their mortgages. AIG is not the only company with this stuff on their balance sheets. But the deal they've worked out with the fed and treasury are good because they have companies that are profitable which will be sold to repay the debt. The interest rate on the renegotiated loans is about 6% over 5-6 years. That will mean a profit of millions of dollars for the govt.