While I was stuck for most of today in areas of London which seemingly had no wifi coffee shops, AIG managed to contrive to lose $61 billion in a single quarter ($670 million a day!) and the stock market finally gave up any hope of staying above Dow 7000; S&P 700 is only six points away.
It's fascinating to me that AIG is still a publicly-listed company: the official Treasury statement goes to great lengths to perpetuate the fiction that AIG and the US government are two separate and distinct things, and to emphasize that this period of "public ownership" (they don't use the word "nationalization") will come to an end "as rapidly as possible".
I doubt it'll happen: under any ownership but that of the government, the ratings agencies would never have been so happy to pre-approve today's deal, and any sale by the government will be almost impossible without jeopardizing those all-important ratings. Besides, AIG does something only the government can ever do, as Justin Fox explains:
Essentially, AIG got into the business of insuring much of the world's financial system against the consequences of a global financial meltdown. It turned out to be incapable of delivering on that insurance--no private company could deliver on it, which is one reason why AIG's business of selling credit default swaps was a scam. And so government has stepped has stepped in as the ultimate insurer.
Providing insurance where private institutions can't is one of the most important and essential roles of government.
The scandal here is not the size of the losses from the global financial meltdown -- those are losses which sooner or later, in one form or another, would have had to be borne by the government anyway. Rather, the scandal is that AIG could have earned billions of dollars by selling insurance against a meltdown, even as it was wholly incapable of paying out on those policies.
I wouldn't be surprised to learn that Hank Greenberg was still a billionaire, even as the policies his company wrote have cost the average American household some $1,600. It's time for his wealth to be confiscated: it might be only a drop in the bucket compared to AIG's total losses, but it would feel very right.
Disclosure: No positions