CNBC is reporting a massive $60 Billion loss at AIG and a desperate plea for more government aid:
http://www.msnbc.msn.com/id/29353489/
Are they really too big to fail? They're already into the feds for over $150 Billion. If their book value drops much further, it will trigger automatic defaults. How much more will it take to save AIG, and is it worth the cost?
Time for them to die. Orderly disposition of assets to recover whatever money can be recovered for the government.
Insurance pools should be ring-fenced anyways (by law from the way that insurance works) so there should be sufficient funds to pay creditors.
It's time to start letting the system do what it was designed to do.
Yeah, I think it's about time this company is allowed to file bankruptcy. It doesn't make sense at all to pump in more money. The government already owns 80% of the company, so they can essentially buy only 20% more of the company. 60 billion in exchange for 20% of a company that is currently trading at 50 cents is a retarded trade. The worst that can happen in the following months is if the following events happen simultaneously;
1) Nationalization of Citi and possibly BOA 2) AIG filing for bankruptcy 3) GM, Chrysler also filing for bankruptcy 4) Unprecedented rates of unemployment 5) A whole lot of shit as a consequence of the above
unprecedented rates of unemployment?!?!?! so you're calling for 40%+ unemployment rates? That's a bold call.
Well the unprecedented thing was a hyperbole but, the gist of what I was saying is that we'll have a lot more people begging on the street than we do today.
Sorry xqtrack and indian-banker, but you're wrong; you cannot simply allow AIG to fail and liquidate the company.
AIG sold 100s of billions or maybe even trillions of dollars of (notional amount) credit default swaps to other banks and companies. These CDS's allow banks to keep their assets (corporate debt, bank debt, etc.) valued at higher amounts on their balance sheets, since those assets are insured.
If AIG were to fail then the CDS's will become worthless and banks and other institutions will have to start writing down their assets on a massive scale, which would start a domino effect that could destroy the entire financial system.
Side Note: AIG sold CDS's without setting aside any capital for contingent losses which are piling up right now. That's why they were called swaps although all they really are is insurance; on the other hand if you sell insurance you have to set aside capital for potential losses.
AIG will fail, if not next week, in another 60 days or a multiple there of. There is barely enough political capital left for this go round, one or two more, and there wont be any left, and thats apart from the financial side. stk123 is correct in that then the domino game begins. The bailouts are just very expensive delay tactics in hopes of some level of recovery. That's not projected to happen anytime soon, and political capital will run out long before hand.
The question then begins, how to prevent systemic collapse. There are very unpopular solutions out there, all requiring substantial govt intervention in the legal domain rather than the financial one... to me, its a game of chicken to see which nation takes the first step, as likely no matter how unpopular, once one starts, others will align themselves pretty quickly.
Of course there is also the civil aspect of this as well. Bailing out AIG, C and BAC and not GM, etc could result in substantial civil disturbance. Perhaps more so than if the entire financial system were to implode without govt intervention. I don't envy the politicians juggling all of these factors at all, but it is the cards they are dealt with.
Although their CDO and CDS's would all default upon failure (this is assuming that in the event of their liquidation, they will not be able to cover the swaps or obligations), it would not cause a huge domino effect. When a party enters a CDS with AIG, they assume counter-party risk- the risk that AIG will default.
Just like bonds have ratings, CDS's have spreads which determine their riskiness, so this domino effect won't be eminent. In addition, keep in mind that these derivatives are a zero sum game.
I hope they let them fail.
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