AIG: Give us another bailout or we'll declare bankruptcy

I've lost count. How many times have we bailed out this so-called insurance company?

American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.

Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.

That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.

In addition, if AIG's book value falls below a certain level, as it seems certain to do, it will trigger default in certain of its debt instruments, say people familiar with the situation.

All of this adds up to a huge headache for the Federal Reserve and Treasury, which have already provided over $150 billion of assistance to AIG.

Talks between the government and AIG are focussed on how the company can swap some of the debt held by the government for equity in AIG. The problem is that the government's ownership stake cannot exceed its current 79.9 percent, leaving officials to try and find a creative way to transfer value to the US in exchange for AIG reducing its debt so that it can then borrow more from the government to meet its collateral calls.

There is a time when you need to cut your losses. We are least $100 Billion past that point.

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cutting your losses

I think the problem is contagion and systemic risk. Somehow the government needs to get their heads wrapped on systemic risk and throw out this crap. I think they should be hiring like mad financial experts, IRS agents, insurance regulators and any other person off the street who isn't corrupt and has a brain with a clue in it and start analyzing the "assets" of AIG, take it over and start throwing out the garbage. Maybe the way to do that is bankruptcy or plain full bore nationalization, but clearly leaving executive management in charge is absurd at this point. They are proving to be blood sucking zombies.

Midtowng, we could use a blog post that goes into the nitty gritty, as much as one can research, on what exactly is the systemic risk and how to stop it from blowing out the dam.

Does the United States need to guarantee certain annuities and other vehicles promised by AIG or ?

$60 Billion dollar loss

Supposedly AIG is going to report tomorrow a $60 billion dollar loss.

Let them fail

In fact, as far as I'm concerned- let's just pass a law that says the loans of any corporation in bankruptcy are forgiven outright.

Then, let them fail, and watch this turn into a REAL ownership society.

Maximum jobs, not maximum profits.


The thing is, they're already de facto insolvent. They (AIG and its many subsidiaries) are legal fictions at this point. Treasury knows this. The attempt now is to gradualize the shift and let the air out slowly. AIG was a global brand and had its hands in public pensions all over the place. Not enough reserves exist to cover the actuarial obligations. That's, in my thinking, what much of this threat to extort is all about.

right, Zombie institution

If you find out what is under the hood, especially with systemic risk, contagion, it would be a unique blog post cause I have not been able to easily find it.

I know they have a butt load of various retirement/pension funds and annuities and all sorts of supposedly "guaranteed" retirement funds.

I think the "domino effect" was the initial reason they got the money and that obviously isn't working with the walking dead but any details on how to handle such a large instituion with some many other dependences....I'd love to read that.

I guess a corporate bankruptcy expert or maybe an insurance industry expert type of input would be educationally useful?

AIG Has Flatlined

I don't think there's enough money on Planet Earth to save AIG at this point.

I can't believe they were allowed to take on as much risk as they did. I can't believe that any sane businessperson didn't raise a red flag. What we have here is a clear case of greedy executives that took profits and bonuses from bond insurance during good times without any thought of the long term risk. They pursued a quick buck, collected hefty bonus checks based on those artificially inflated profit numbers, then left the mess for us to clean up while they flew their corporate jets to the Caymans.

Giving AIG more money, now, is using a single 5 gallon bucket to bailout water from the Titanic after it hit the iceberg. AIG is sinking because of poor risk management, insane amounts of risk related obligations, and there's nothing anyone can do about it.

By the way, isn't risk management the primary business of an insurer?

The government needs to be preparing to deal with the fallout, not negotiating to trade semi-valuable bonds for worthless stock.

The government should have sent in experts back in September to assess the real value of the company. They didn't, so I think you can, pretty much, write off the $150 billion they've given AIG.

The $150 billion is a sunk cost. There's no good business reason to give them more money when the outcome is certain: AIG will fail.

Let them fail.

Let them fail. What ever happens happens. By giving them more money they are not going to magically find a resolution.
Let if fail, let it crash. It's time for a reboot.

Moral Hazard?

AIG took advantage of "skewability"...the unregulated space
between SEC and CFTC. (See the Commodities Futures Modernization Act.) Much of the securitized bullshit now needs to be shoved back in the faces of those that created them and spread the risk...all around. The cogniscenti. Let them eat shit, now. It's their time to die.:-) Bring it on!
(Guys like Paulson ought not be exempted...)