AIG – How Much More Can $30 Billion Buy?
Posted on 03. Mar, 2009 by Simon Banks in Business, Finance
U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up
Emergency Loan Effectively Gives Government Control of Insurer; Historic Move Would Cap 10 Days That Reshaped U.S. Finance
September 16, 2008 — Wall Street Journal: by Matthew Karnitshnig, Deborah Solomon, Liam Pleven and Jon E. Hilsenrath; U.S. to Take Over AIG in $85 Billion Bailout
“U.S. government will effectively get a 79.9% equity stake in the insurer… –WSJ.com”. For $85 billion dollars, the U.S. government controlled 79.9% of AIG. The loan was secured by AIG’s assets and “taxpayers could reap a big profit through the government’s equity stake”.
The article, like many other articles about AIG and the process of what the government was going to get from its infusion of capital, etc… talks in circles – and by the time anyone is finished reading it, is totally confused as to what really happened.
Correct me if I am wrong as I break down the following chronology:
- Sept. 16, 2008: U.S. government takes over 79.9% of AIG with an $85 billion dollar investment.
This investment is suppose to be secured by AIG’s assets - Immediately AIG begins selling some of its assets
Now – my question is: what do we have to secure the loans with? - Oct. 8th, 2008: Less than thirty days – AIG get an additional $37 billion — U.S. government did not receive additional percentage of the company
- Nov. 9, 2008: Just thirty day later this investment gets $152 billion dollars more and AIG management gets a $500,000 vacation, compliments of the United States Tax Payer. Still no more stake in equity and now there are less assets to attach loan to.
- March 2, 2009: AIG seeking an additional $30 billion – “for addressing AIG’s financial challenges…“
Private sector investors won’t touch this. If banks would have made those kinds of loans they would end up going under for bad credit lending. Oh, I’m sorry – that is what happened to the banks. AIG would have been better off going to the chopping block in the beginning and other companies would have bought them up in pieces.
Why don’t they want to do that? Because they think the U.S. government owes them a living and should pay more for their assets than they are worth.
The same thing is happening with the banks right now and bad stocks. Everyone seems to want to sell to the U.S. Government at a higher price than what they are currently worth. That is bad business. And then these failing companies say: “Well, we just won’t sell”. Great! If you feel you don’t have to sell – in reality, the U.S. Taxpayer does NOT have to buy.
If Warren Buffett bought companies the way the U.S. Government is buying into companies with bailout money – Warren Buffett would be penniless and probably living in the streets. But Warren Buffett knows when to buy and when to not buy – he knows when to sell and get out as well. He also knows that if he owns a controling share in a company and that company is not making money, there are immediate managerial changes. You don’t keep dead weight and you don’t keep “but that is the way we always did it” people.
How many more billions have to be thrown down the drain before someone admits that trying to save AIG was a mistake? Or is it once again the issue of government pride that says: “Well, we have invested this much into it – we might as well keep going – we can’t admit we were wrong”. Besides, that is less than George Bush spent every month on the U.S. war in Iraq. So what is another month of (dead) loans to AIG.
It is time for Americans to lift up their voices and take action. If any private citizen went to the U.S. Government with the types of business plans that AIG, The Big Three, and the failing banks have right now – we would be turned down flat. If you went to a bank for a business loan with as much debt as the banks have while asking for bailout money, you would be laughed out of the bank.
The U.S. Government has currently spent over $9 Trillion dollars in bailout money without much effect. That much additional buying power in the economy without helping it seems ludicrous to say the least. So what really is the problem? If the U.S. government gave each working person in the United States $50,000 – it would have saved the government almost $2 trillion dollars so far. That money wouldn’t have helped save some mortgages? That amount of money wouldn’t have helped save some businesses? That money wouldn’t have increased buying power in the economy and thus saved a lot of production, manufacturing, etc… How many automobiles could have been bought with $50,000?
What is the final solution? That question may still yet be decided. It certainly doesn’t seen to be sinking more money into worthless investments. Perhaps we need to consult with someone like Warren Buffett.
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