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Crunching Numbers: Why I'd Buy AIG

1. Assets, Market, Liquidity
everyone talks about the value of the assets, which is good, to a point. Remember though that if there is no market (ie, no one wants or no one is large enough to buy your assets), then what is the value of those assets?

2. Liabilities
The assets are there to provide for the Liabilities... so what happens when

(a) AIG need to pay out claims??? They use their cash, which in effect increases the % of total assets which are less liquid.

(b) policyholders start to cancel their contracts which have significant surrender (cash) values??


Two quick comments on the analysis:
1. we are in a new era going forward ... historical assumptions not so applicable (though government could intervene to attempt to change assumptions)

2. when calculating Present Value, the interest (discount) rate used should be the rate that you as a investor demand as a return on your investment. If you are happy with 4.5%, then ok, but other investors want something like 15%.... try inputing 15% and see those PVs decline rather significantly !!

Let Lehman Fail

Very good summary of the situation with LEH. Fortunately with the internet, one can explain the one-sidedness of the system, and maybe citizens will stand up and take some action ...
The USA is a litigious society... well citizens, get off your arses and do something!
There have got to be some attorneys out there that can argue the actions of government are against the law, constitution, or otherwise the government has failed in its duty. Maybe no attorneys in America are willing to take up that fight ... maybe it takes outsiders (eg. a foreign nation) to bring forth action!

Similarily, the government should not bail out "insurers" like AIG, who actually manufactured products similar to the investment banks.

Bank of Montreal: Should You Be Tempted?

CIBC has made many more mistakes, and lost significant value. Perhaps it is the worst Canadian bank stock.

Citi: Break It Up! Break It Up!

yes, i agree with the above posters. posting here, only because cannot post on the original content creator's page.

i do not know Citi's business that well, but the concept seems reasonable. In fact, like the author, I have beeh harping for quite some time for AIG to split up -- problems with transparency would be reduced and investors would have the opportunity to invest in the parts of the business that they wanted.

but, i disgree with Tom Brown's (bankstocks.com) picks and harping to go long on:
- Montpelier Re (MRH) [i think they averaged down from upper 20's/low 30's so average cost was near $20/21]
- First Marblehead (FMD) [was recommended in high 40's low 50's]

4 Recommendations to Defend Against a Financial Armageddon

This comment for User_162919 and others who naively believe the Fed is the supreme solver of problems.

1. "The economy will recover in "12 months"". The ultra-wealthy will survive. The middle class? Some will make it, others will not. Standard of living has been chopped.

2. Consumers keep borrowing. You think you can live on someone else's finances all your life? AT some point the lenders smarten up.

3. USA vs other countries. "Oh, the economy will recover" Just wait until you go for that business trip or vacation abroad -- not just the higher cost, but some places "no want stinking dollar" (yes, a foreign vendor said those words!)

4. USA as powerhouse, world leader, etc. Too many nations (both eastern and western) do not agree with your policies. What is the USA going to do

...bomb them? first they will hide out and make you spend and spread your resources to come get them

...boycott their products? there are enough other nations that were savers vs debt holders that will buy from those nations. By the way, that family in a shack in central India has no debt, but some USA citizen living on debt for their life...is just that, in debt and has demonstrated they are no able to earn enough to pay off that debt (or just kept on spending)

... withhold goods? give some examples. clothes, cars, computers? you can buy those from a China

... withhold services? question is if they need the services.

... withhold commodities? what does the usa have? usa is an importer overall.

The standard of living in the usa is on the decline. (but let's talk about the economy, supported by a government that keeps borrowing, or when it feels the needs, prints its own money ... i guess the individual citizen would like to do that to maintain their prior standard of living).

4 Recommendations to Defend Against a Financial Armageddon

Some of my comments respond to the author's article and some to other posters.

The US consumer is in for a reality shock to their standard of living and relativeness to consumers in other countries. I've said that back in 2006, but my point is: society and the US consumer wanting to have, have, have and so taking on debt, debt, debt.

US government is also not so fiscal minded. In layman's terms, the wars (Iraq, Afghan, and minor ones) have a cost, funded mostly by the USA. Who funds it? ultimately the US citizens, through taxes, reduced services, etc. The companies/citizens benfitting have been those in the defense sector...already the US was declining and one theory says wars create economic activity.

On the wars alone, the USA gov't has hurt its citizens for the next generation (starting say 2003, after not pulling out), through:
- worse standard of living
- paper ripped in half called the "dollar"
- protectionism and somewhat confinement/"jail" (how can you leave if your currency worth has been cut by 50%)
- social security system... it just keeps getting debated; no one in gov't wants to fess up and take the hit / pay up the money to fund the benefits that the US gov't promised

Having said that about the US gov't, China is getting lucky.
- Instead of psychologically warped teenage mids in the USA taking a gun to their school or local shopping mall, in China it is the gov't who takes guns on its people (this is not a religious point - rather sit down, talk it out, and be reasonable).
- China, being a communistic country takes care of its people, correct?? WRONG! Where is the healthcare for all? Where is the social security system? Come on China, you have a large surplus, why not provide for your people? By the way, many are at or near retirement age, oh why not keep the money in the country's coffers.


As for the Fed, and for companies who were greedy/lax, let the market decide. Should we all take our savings (or get that last minute loan) and buy shares in any XYZ company; and expect the Fed to bail us out? No.

The US peoples' standard of living has been pulled from underneath them. Carroll Quigley wrote "The Tradegy and the Hope" about the rise and fall of civilizations (money,power,etc) over time. The stock market may or mat not reflect it always, but when you have less than your previous generation, and want to take that trip to Europe or Asia and see that vendors don;t even want your currency anymore, those are telling signs. Hey, but you had it good when you living on someone else's money whilst borrowing..eventualy someone comes knocking to collect.

Chinese Job Market Demographics: 3 Implications

China does not have a social security system. Visit China and talk to the locals, it is a mis-guided sterotype to think that under communism, that the governmen take care of its people.

Hey China, spend some of your trae surplue to provee benefits you your population

Why It's Not Too Late to Short China

Similar to a control over supply, and demand for whatever reason not recognizing it. Example company ZYX lets 10% of its stock for sale i a hit market. Everyone want the shares and bids the price up 25%, 50%, 150%. Just ridiculous, only because of manual repressing of supply

5% Revaluation of China's RMB? Are you Crazy?

The US government has not scratched, but severely injured, the US consumer, not only with spending US consumer revenue (taxes, etc) abroad, but not wanting to bite the bullet at home on the cost of health care and retirement pensions.

The worldwide "central bank" concept, influenced by the USA and thus US dollar is in question. Carroll Quigley, a Georgetown University, Washington DC, professor, wrote a 1,300 page book entitled "The Tragedy and the Hope" about the rise and fall o civilizations. The USA is in a decline in the world, doesn't anybody understand that.

There is already outsourcing using persons from Michigan.

US persons have and are in for a major, severe, unprecedented, tsunami, of adjustment of lifestyle. Sovereign funds own a piece of some important US companies, and one day the consumer of China or India will be telling the USA, improve your service or we will go elsewhere.

It's Time to Break Up AIG

David, so you have been reading the Yahoo message boards. Why not cut & paste some of what I've written there regarding splitting up the company, enterprise risk management, etc.
On the Yahoo message board, it was an eye opener to read of another aspect of the mortgage industry -- the appraisals themselves and how companies like an AIG (and others), can play hard ball / bully the appraisors and their firms. As the mortgage industry is scrutinized further perhaps issues like this will become more apparent and the "bully" advantage will decline.

Years ago there was talk in the industry of some insurers making money by not paying claims (or significantly delaying). Some other companies made money through "float" (accepting money as an intermediary and then holding it for a little while before paying it over to the party it should go to). How much additional income is still generated by the insurance industry through such practices?

Where was the ERM? Derivatives? that are illiquid? There is always a winner and loser with derivatives. Sure, just keep taking one side of a derivative trade, oh and be sure not to protect against losses through purchase of a security at, say, a 10% loss level. Oh, we never thought about it? Oh, there is no one offering that type of derivative of the magnitude of our portfolio? Oh, PwC said we had a material weakness because we did not record the credit quality of the business underlying the derivatives - who needs to know that? Oh, forget Kevin Costner, we are the Untouchables.

The competitive advantages that this company once had have been and continue to erode, just like the US dollar.

Thoughts on Ambac Bailout, MBIA, Berkshire's Muni Bond Backing

Disclosure: no position in ABK, MBI
But, I'd have to say there was/is an element of manipulation with a hint of a deal and a lot of weasel room / ambiguity that it would be somewhat difficult to dispute its plausibility.
The strange thing is: why should almost the whole market go up with a potential (or actual) capital solution to one existing, financially troubled, insurer? There are new market entrants such as Buffett and likely others, which can fill the void of coverage needed. Is finding a solution to this one company: (a) the panacea for the whole market? (b) putting more into the hands of the consumer to drive the economy?

Hardly think so, so go figure when technology companies and other seemingly less correlated industries suddenly rebound.

The credit market meltdown can be attributed to lack of risk exposure tracking/management and possibly some common sense. Spreads/premiums were decreasing to rather low levels. Many derivatives were/are involved. In contrast to an underlying security with derivatives, there is a winner and a loser. Too many persons on one side of the market. Oh, and of course, the underlying underwriters/insurers of the credit risk letting their underwriting discipline disappear. And how about that AIG which forgot to consider (and/or record) the credit risk quality of the underlying companies (vs just the quality of the securitized vehicle)? The "pump" is certainly on at AIG with the WSJ publishing multiple articles to defend the stock.

Is the credit situation an acute (very hard hitting, one time) event or is it a chronic (ongoing, still hard hitting though we may think it is a shock at the magnitude of the first round, future rounds are quite bad also) event?

More problems in the credit market in my opinion. It's also amazing how overseas markets rocket when there is a hint of a recovery in the US economy -- ya think it's fixed overnight? for every sector?