Friday, February 27, 2009

AIG is a POS

With all the talk about "nationalization" of the largest financial institutions in this country, I thought I would point out a piece of news from earlier this week that I just don't think got enough attention in the financial or major news media. Earlier this week, insurance giant AIG pre-announced its plans to report an all-time record loss (for any company, ever) of $60 billion for just the fourth quarter when it announces its quarterly earnings this coming Monday. Yeah, you read that right: 60 billion dollars of losses, just in one quarter. So that is what, a $20 billion loss in every month, or close to a billion dollars lost on every single business day in the month. How sick. And you know what the worst part of all with this news is?

The government already owns 80% of AIG, as of last September's emergency bailout of the world's largest insurance company. So for the entirety of the fourth quarter, our government was already constructively "in charge" at AIG. This is the closest thing to a "nationalized" entity we have in this country right now, combined with mortgage lenders Fannie Mae and Freddie Mac, both of which were taken over by the government in August of 2008. So for those of you who, like me, are concerned about the ability of the government to effectively run a financial services business, we've got a full quarter's evidence now at each of Fannie, Freddie and AIG. And you know what? Fannie reported quarterly losses of $29 billion in November 2008, Freddie lost $25 billion, and now this $60 billion for AIG.

$114 billion in losses for the three truly nationalized public companies out there right now in the financial sector, in just the first quarter that each of them was managed by the government? I think that tells you all you need to know right there about our government's ability to effectively nationalize our leaders in this space.

And I love this especially much -- take a look at today's latest plan coming out of AIG. Basically, AIG has been trying to sell several lines of business as a way to raise the capital to pay back the $150 billion in emergency loans it accepted from the government late last year, and it is finally accepting that it simply cannot get the prices and the terms for those sales that it thinks it deserves. So the new plan from the new AIG CEO installed by the government in November? Instead of AIG paying us back the $150 billion it owes us, the new idea is just to sell those business lines directly to the U.S. government in-kind.

I mean, isn't it bad enough that we would loan out $150 billion in cash to AIG, and receive in return not cash of an equal amount plus interest, but rather ownership of former AIG business lines which AIG has been flat-out unable to find any buyers at for any reasonable price, but which AIG claims it believes are worth $150 billion? But then, looking at its track record, can you imagine the results of our government trying to run these three insurance businesses going forward? If we accept AIG's latest proposal, that will represent an absolute abuse of us by AIG's current and former leadership, borrowing huge sums of money without an actual ability to repay us taxpayers what they borrowed. One can only hope that Barack Obama figures out that the financial crisis is already bad enough already without the government agreeing to run AIG's global insurance businesses in exchange for forgiveness of the 12-figure debt we advanced to AIG to keep them afloat just four months ago.

Labels: , , ,


Blogger jjok said...

I tell ya.... They are giving us the muther of all PALS right now

11:44 PM  

Post a Comment

<< Home