Why AIG Needs to Go into Prepackaged Bankruptcy

At the beginning of its trouble, AIG held $2.7 Trillion dollars worth of exposure on the derivative market. Now that the United States Government has given the company $180 Billion dollars of bailout money, they still have $1.5 Trillion in exposure. To make matters worse, AIG’s fourth quarter loss of $61.7 Billion was the worst corporate loss in U.S. history. We believe that AIG needs to go into prepackaged bankruptcy for three reasons:

1. It has required $180 Billion of taxpayer money to reduce the company's exposure by $1.2 Trillion, and we can expect, given the company's general financial health, that reducing this exposure to a "normal level" will require billions more from taxpayers.
2. The money given to AIG by the government was given under the assumption that the vast majority would go towards paying off obligations which, if left unpaid, would prove disastrous to America. However, because the company is still in operation, it must legally honor its obligations - a significant portion of which do not represent systemic risk to the American economy. For instance, $33 Billion dollars were paid to foreign banks by AIG, which means that some of the money Americans gave the company in order to save the American economy had to be spent saving a foreign economy instead. Going into prepackaged bankruptcy gives the government the power to sort through AIG's obligations in order to determine which represent systemic risk and which do not. Then AIG and the U.S. government can only honor the ones that represent systemic risk to the U.S. economy.
3. At the beginning of AIG's collapse, letting the company go under would have caused a panic. However, since that time, the public has become inundated to the economic problems that the country now faces. We have seen our money used scandalously by AIG, and we have seen other economic giants go safely into prepackaged bankruptcy. Clearly, Chrysler’s bankruptcy has shown all of us a real world example of the effectiveness of a prepackaged bankruptcy vs. the endless transfer of wealth from the American taxpayer to insolvent companies.

We are ready to let the teetering company tumble. The time has come. In fact, it's long overdue. By taking AIG into prepackaged bankruptcy, we will have the opportunity to clean house.

Disclosure: No positions

Comments

[normthefedup]

Will your prepackaged bankruptcy give me and my fellow Americans back our $180 billion? No. We have, unfortunately, rolled the dice on this and now we've got to let the bet ride. You and your ilk need to STOP PLANTING THE SEEDS OF DISSENT AND DISCONTENT.

2009 May 27 08:38 AM

[Odysseas Papadimitriou]

normthefedup -- I guess you are not familiar with prepackaged bankruptcy. After bankruptcy the US goverment will still owe the vast majority of AIG, but it will owe a much healtier company that has freed itself from obligations that do not present a systemic risk to the US economy -- like the $33 Billion that went to foreign banks!

2009 May 27 10:54 AM

[Jasper M]

AIG needs to be put down (gently), just to remove the bad example, and to closed off the $ conduit that is being manipulated by banksters.
norm, the "seeds" you speak of where planted long ago, when the US government handed over control of its currency (and thus its economy) to the Federal Reserve. They are fully grown now, and we are now set to reap a tremendous harvest.
And we are on the road to no kind of recovery, until that harvest is in.
YOU are sewing the seeds of COMPLACENCY AND INACTION. Stop it!

2009 May 27 12:40 PM

[someone in the biz]

Ummm....actually the plan for AIG has been considered a 'controlled bankruptcy' from the get-go. The concern was that plunging the company straight into Chapter 11 would have created unprecedented systemic risk, worse than the aftermath of Lehman (remember that?).

Employees at the company and those who bother to read up on the details are fully aware that AIG is in the process of being liquidated. This isn't a bail-out to keep the company afloat, it's a rescue plan to prevent further economic meltdown. And of the $173 billion, only about $40 billion has been used.

I've always respected Seeking Alpha, kind of surprised by this rabble-rousing post.

2009 May 27 12:54 PM

[Odysseas Papadimitriou]

There is a big difference between the Lehman Bankruptcy and the Chrysler Bankruptcy that is a prepackaged bankruptcy. I advocate a prepackaged bankruptcy for AIG, because it is nonsense for AIG to have to honor obligations that do not present a systemic risk to the US economy.

2009 May 27 02:18 PM

[someone in the biz]

First of all, it was only recently that AIG revealed (and probably discovered) how much of its exposure was with non-US entities.

Secondly, just because a bank is based in Europe doesn't mean its exposure poses no risk to the US economy. And vice-versa.

I agree, it brings into question aspects of the AIG plan the use of taxpayer funds, but that's another issue. Don't confuse the two.

2009 May 27 06:15 PM