Saul Sterman

AIG: Closing My Long Position

@TomArmistead

Appreciate your comment.

The way I look at this is simply that there is a reasonable chance for a 'national' bailout of sorts, whether it is $700B or $500B is not a major factor.

This will create enough of a safety net that will create a 'bottom' value for CDO, CDS and other instruments. In other words, if the value falls enough, the government will buy.

Having said this, think how much potential upside there is for AIG. Compare this with let's say ABK as mentioned in the article. Because of the 80% equity stake, AIG has limited upside whereas ABK that does NOT have an 80% dilution can hit the $12 target that VivaVegas is looking for. ABK is depressed because of a possible Moody's downgrade. Once the 'national' bailout is completed, both should appreciate. The reason for a possible downgrade disintegrates into thin air as well. The big difference is, whereas AIG shareholders transferred 80% equity to others, ABK shareholders did not.

In other words, should the $700B plan go through, ABK will benefit far more than AIG. Should the plan fail, AIG's rescue is at risk as mentioned in the article. ABK on the other hand can dilute by 20% and stay in business. As it stands now, ABK is pricing in a 20% dilution and no bailout. In other words, no downside and only upside. I think the chance of some sort of 'national' bailout is pretty good...but waiting to see what the market says. Just like with AIG, I didn't get in at $2 and change but waited a bit. Likewise with ABK. If it jumps and I miss it, no sweat...there is always another. Just be patient.