The biggest bailout of the Obama Administration, and one of the most controversial, was that of AIG.
Former CEO Maurice Greenberg said his company was "nationalized" and some $90 billion was loaned to the company. We the people took $40 billion in new stock in 2008 and by the start of 2012 still had $50 billion invested.
I think we had to do it. AIG had become such a big factor in the global insurance markets that losing it would have caused world economic collapse. More important, to me at least, is that it was a good investment.
Insurance is a good business to be in. It's bookmaking. You figure the odds, and the price you charge is based on a conservative estimate of those odds, plus profit. Whether you're insuring an oil rig, a tanker truck, a car or a baby's life the game is the same. And while you have their bet in hand you get to invest the proceeds - profit.
America ceased being AIG's majority shareholder in September but we still hold a 16% stake. The company is continuing to shed assets, most recently its plane leasing unit, but a lot of people wonder whether the "government overhang" will permanently scar the company.
But, as JayHedge notes, a lot of smart money is going into AIG. It's a smaller company, but that's good. AIG will never be as dominant in global insurance as it was under Greenberg, but that's good too. Insurance is one business that should always lie with the market, not the government, and should always be competitive, because that's the only real way to balance risks and rewards accurately.
There's a lot of argument here at Seeking Alpha over whether AIG is correctly priced, whether its assets are worth what we're told, whether the full liability story is in the shares. That's a worthwhile argument to have. But the fact is that AIG is up 40% this year, the government is likely to get out of it with its shirt still on, and a wall of worry is actually a good thing.
My view is that the next few years will be very, very good for investors in AIG. I think the government is going to push for more divestitures, and won't get completely out until that's done. Which, again, is good - competition is good. But time heals all wounds. AIG is now doing business under its actual name again, it's making acquisitions again and (most important) insurance is a very, very good business to be in. Always. It works.
The government stake in AIG is now small enough that it's no longer a government company, but a private one. The government's hand will remain on it, always - insurance will always be a regulated industry because it's so vital. But you don't have to be a buyer of cigarette stocks to like AIG at this point. You can buy it with a clear conscience, see some better-than-average returns over the next three years, and then enter something like a normal industry cycle.