pelican

AIG Needs Dissolving

I think AIG stock is worthless but I have to agree with blogbuster if I look at this from a taxpayer's point of view. AIG owes $80b and if it means taking a few years to get as much of that as possible back, then so be it. The GAO report said nothing that nearly everyone already knew: AIG may not be able to repay everything. But why immediately liquidate now? From an operational standpoint things are improving - as the report noted - and avoiding fire sales seems like a reasonable strategy. So why not wait?

A year ago the AIG bailout was greeted with derision almost to a person. One year later even the author of this article recognizes it probably averted a bigger financial meltdown. If AIG was liquidated with great speed now I guarantee the media would jump on it pointing out that by not methodically selling assets, the government could have saved taxpayers billions. This article got a log of headlines today because it makes it sound like AIG continues to be a sinkhole, which is not the case anymore. At this stage I don't think the government needs to "get tough" if that simply means limiting the potential repayment on those loans. The author says we should because it would "serve as an important reminder to Wall Street and giant banks around the world, that there's a price to be paid for becoming too big to fail -- and then failing." Well, I think its a little too late for that now. Besides, I think in many ways prices have already been paid. Regardless, as a taxpayer, I want as much money back from AIG as possible.

Disclosure: I bought put options because I think AIG will eventually be sold off completely with no value left to shareholders.

AIG Overpriced? Perhaps Not as Much as Barron's Thinks

"With $185 billion in debt, AIG is certainly not in great shape right now.
***Understatement of the summer?

"But its $35 billion stock market value doesn’t look like too much to pay when considering the longevity of the insurer, either."

***I'm sorry but what does this mean? Are you suggesting the AIG brand is what it once was? Are you saying AIG will be around for years to come? I'm not sure you can make this statement without backing it up with more financial analysis.

"In an aggressive market environment, rapidly spurred by Asian investment (despite the volatility), it’s almost fair to say that the current market capitalization of AIG reflects the prices its various remaining today will rise to in twelve months time."

***Almost fair to say? Again, based on what analysis? The company has not been getting good prices for its assets and saying they will over the next 12 months doesn't mean it will happen.

To be honest, I'm stunned that you haven't mentioned how the CEO recently stated the value of the assets now is less than what they owe the government. As noted in a Motley Fool article today, assets were reported = $58 billion (book value even though they've been getting less than book) and they owe $80 billion. So you don't just need some increase in assets values, you need a heckuva increase just to pay off the government. In the meantime, as the company sells assets, its earnings power decreases. So after the government is paid off - assuming for a moment they actually are paid in full - you've got the bondholders. Any crumbs left go to the shareholders, and I seriously doubt they will see anything. AIG is going through a forced liquidation which even the CEO admits will make it challenging to even end up with a company that is a former shell of itself. Nonetheless, you make it sound as if its a given that the stock will continue to rise, let alone the company even existing over the next decade.

There is something very wrong with this kind of article and I think its because it reminds me of others I've seen in recent years; the kind that touts companies on the brink (e.g. mortgage companies). In my view, there needs to be greater responsibility explaining the potential (and often enormous) risks.

The Economy, And Why It's Taking So Long to Fix It

This was a good article. And it didn't pretend to have all the answers. No one knows what to do, and if they say they do, they really don't know how their solutions will play out. That said, momentum will change once the economy recovers and asset prices stop falling. We're in a cycle and, unfortunately, the worst part of it. But storms past and damage gets repaired bit by bit. It took three years (August 1929 - July 1932) for the stock market to bottom during the Great Depression. Since things are at least not that bad, I think the stock market will bottom some time during the second half of this year (two years after it peaked). The 2000-2002 bear market was long because stocks were vastly overpriced (at least growth equities). Not the case these days. As the author noted, if your time horizon is a bit longer, things look better.