"Bailout" for AIG, but not Lehman Bros. or Merrill Lynch - cougarguard.com — unofficial BYU Cougars / LDS sports, football, basketball forum and message board

Solon · 09-17-2008, 03:33 PM

"Bailout" in quotes because it's a loan with some pretty thick strings attached. Either way, the feds have rescued them.

Was it a wise move?

http://www.economist.com/finance/dis...tures_box_main

I'm guessing it'll be years until all the ramifications come to light, but what are the initial thoughts?

Financial guys?

landpoke · 09-17-2008, 03:41 PM

My thoughts are I still don't know what it is exactly AIG does that makes it so important. All I keep hearing is that it's ginormous so I guess that's good enough reason for me. I trust that the government knows what they're doing.

Solon · 09-17-2008, 03:50 PM

Quote:

Originally Posted by landpoke

I trust that the government knows what they're doing.

Please surrender your proof of Wyoming Residence immediately. You're being deported to the east coast.

landpoke · 09-17-2008, 04:09 PM

Quote:

Originally Posted by Solon

Please surrender your proof of Wyoming Residence immediately. You're being deported to the east coast.

I'm well within the big tent of Wyoming political thought. I think the government knows what's right, just not what's right for me.

BarbaraGordon · 09-17-2008, 03:43 PM

Quote:

Originally Posted by Solon

"Bailout" in quotes because it's a loan with some pretty thick strings attached. Either way, the feds have rescued them.

Was it a wise move?

http://www.economist.com/finance/dis...tures_box_main

I'm guessing it'll be years until all the ramifications come to light, but what are the initial thoughts?

Financial guys?

There had to be a bailout. The negative ramifications of the alternative were too frightening to consider.

Whether this bizarre publicly-underwritten version of the world's largest underwriter is the best bailout, I have no idea.

Cali Coug · 09-17-2008, 04:32 PM

AIG is gigantic. Almost all divisions of AIG are quite profitable. They just have one or so that were involved in complex derivatives transactions that was losing huge amounts of cash. AIG needed about $70 billion to make payments coming due for that division. AIG's credit rating was then downgraded, making it almost impossible for them to obtain additional needed financing. In stepped the government with a "bailout."

This could wind up being hugely profitable. The money loaned to AIG is at LIBOR plus 8.5% (which is about 11.5% right now). Plus, the government gets almost 80% ownership of AIG. They can sell off bits and pieces of AIG (which are hugely profitable) in an orderly fashion and make a ton of money in the process. The markets will like the orderly restructuring as opposed to the fire sale that would have happened if the government doesn't step in.

MikeWaters · 09-17-2008, 04:34 PM

Quote:

Originally Posted by Cali Coug

AIG is gigantic. Almost all divisions of AIG are quite profitable. They just have one or so that were involved in complex derivatives transactions that was losing huge amounts of cash. AIG needed about $70 billion to make payments coming due for that division. AIG's credit rating was then downgraded, making it almost impossible for them to obtain additional needed financing. In stepped the government with a "bailout."

This could wind up being hugely profitable. The money loaned to AIG is at LIBOR plus 8.5% (which is about 11.5% right now). Plus, the government gets almost 80% ownership of AIG. They can sell off bits and pieces of AIG (which are hugely profitable) in an orderly fashion and make a ton of money in the process. The markets will like the orderly restructuring as opposed to the fire sale that would have happened if the government doesn't step in.

it was so potentially hugely profitable, than no one in the private sector wanted to do it.

Archaea · 09-17-2008, 04:54 PM

Quote:

Originally Posted by MikeWaters

it was so potentially hugely profitable, than no one in the private sector wanted to do it.

Wise skepticism of government's ability to do anything orderly or in a profitable manner. The US Postal Service is a model of efficiency and profitability.

Levin · 09-17-2008, 05:01 PM

As I understand, AIG essentially insured the securities based on bad mortgages. That is, investors in these bum securities bought insurance from AIG to cover any losses they would suffer. And as the real estate market tanked, and the securities became worth pennies on the dollar, the losses were huge, and AIG has to cover them. They call them credit default swaps or whatever, but at bottom, didn't AIG just sell insurance to these people who wanted to cover their risk in the event of a crash in the real estate market and a wave of foreclosures? Smart investors to buy the insurance. Dumb AIG to sell it.

Archaea · 09-17-2008, 05:05 PM

Quote:

Originally Posted by Levin

As I understand, AIG essentially insured the securities based on bad mortgages. That is, investors in these bum securities bought insurance from AIG to cover any losses they would suffer. And as the real estate market tanked, and the securities became worth pennies on the dollar, the losses were huge, and AIG has to cover them. They call them credit default swaps or whatever, but at bottom, didn't AIG just sell insurance to these people who wanted to cover their risk in the event of a crash in the real estate market and a wave of foreclosures? Smart investors to buy the insurance. Dumb AIG to sell it.

IOW, the actuaries for AIG didn't do their jobs. Way to go Indy.

09-17-2008, 03:33 PM	#1
Solon Senior Member Join Date: Mar 2007 Location: Happy Valley, PA Posts: 1,866	"Bailout" for AIG, but not Lehman Bros. or Merrill Lynch "Bailout" in quotes because it's a loan with some pretty thick strings attached. Either way, the feds have rescued them. Was it a wise move? http://www.economist.com/finance/dis...tures_box_main I'm guessing it'll be years until all the ramifications come to light, but what are the initial thoughts? Financial guys? __________________ I hope for nothing. I fear nothing. I am free. - Epitaph of Nikos Kazantzakis (1883-1957)

09-17-2008, 03:41 PM	#2
landpoke Senior Member Join Date: Jul 2007 Location: North Central God's Country Posts: 1,534	My thoughts are I still don't know what it is exactly AIG does that makes it so important. All I keep hearing is that it's ginormous so I guess that's good enough reason for me. I trust that the government knows what they're doing. __________________ I see a hobo. And when I see the hobo, I think to myself, "This man is poor. His monetary value is low, and my monetary value is high, and it's a shame that he is himself. What can I do?"

09-17-2008, 05:01 PM	#9
Levin Senior Member Join Date: Mar 2008 Posts: 1,484	As I understand, AIG essentially insured the securities based on bad mortgages. That is, investors in these bum securities bought insurance from AIG to cover any losses they would suffer. And as the real estate market tanked, and the securities became worth pennies on the dollar, the losses were huge, and AIG has to cover them. They call them credit default swaps or whatever, but at bottom, didn't AIG just sell insurance to these people who wanted to cover their risk in the event of a crash in the real estate market and a wave of foreclosures? Smart investors to buy the insurance. Dumb AIG to sell it. __________________ "Now I say that I know the meaning of my life: 'To live for God, for my soul.' And this meaning, in spite of its clearness, is mysterious and marvelous. Such is the meaning of all existence." Levin, Anna Karenina, Part 8, Chapter 12

09-17-2008, 04:32 PM	#6
Cali Coug Senior Member Join Date: Dec 2005 Posts: 5,996	AIG is gigantic. Almost all divisions of AIG are quite profitable. They just have one or so that were involved in complex derivatives transactions that was losing huge amounts of cash. AIG needed about $70 billion to make payments coming due for that division. AIG's credit rating was then downgraded, making it almost impossible for them to obtain additional needed financing. In stepped the government with a "bailout." This could wind up being hugely profitable. The money loaned to AIG is at LIBOR plus 8.5% (which is about 11.5% right now). Plus, the government gets almost 80% ownership of AIG. They can sell off bits and pieces of AIG (which are hugely profitable) in an orderly fashion and make a ton of money in the process. The markets will like the orderly restructuring as opposed to the fire sale that would have happened if the government doesn't step in.