AIG

[crb]

So hmm..

The government gives a loan (which will be paid back, AIG is huge & loaded). for 85 billion, in exchange they get 80% equity in a company that 1 year ago was worth 190 billion.

Assuming AIG returns to that level, the government can they sell it's position for a nice profit. In the meantime they'll also collect dividends.

Seems like a good enough bargain. As a taxpayer who indeed pays taxes, and doesn't get a refund in April, I'm fairly confident my money isn't being wasted here and should result in a net gain for the government.

[sst]

AIG has to sell its assets and be disolved. If i read it correctly that is. The company will be no more in time... The purpose of the loan was to allow for a orderly sell off instead of a free for all.

[Kranar]

Assuming AIG returns to that level, the government can they sell it's position for a nice profit. In the meantime they'll also collect dividends.


AIG will not be returning to its 180 billion dollar value. AIG is done for. This loan was a way to avoid worsening the absolute crap fest that's occurring in the market right now and to allow AIG to sell its assets off over a longer period of time instead of overnight.

[Mistomeer]

I'm not so sure about the net gain, but I am sure that a failure of AIG would have sent the country into a depression. The $85 billion is just there to have enough capital on hand for AIG to cover bonds since their ratings dropped.

This will have an adverse affect on the dollar and cause a spike in commodities and will result in increased gas prices. Where Ike should have been a temporary spike in prices at the pump, the bailout is going to weaken the dollar and send oil higher.

[sst]

I was gonna buy stock in it if they pulled it off today on their own but sadly it didnt work out =(

[crb]

AIG will not be returning to its 180 billion dollar value. AIG is done for. This loan was a way to avoid worsening the absolute crap fest that's occurring in the market right now and to allow AIG to sell its assets off over a longer period of time instead of overnight.
How does that crystal ball of yours work?

Considering they have hundreds of profitable subsidiaries, trillion in assets. They're not done for. The government is getting 8.5 + libor in interest on a 24 month loan, basically a line of credit covering working capital. After that the government ALSO will still own 80% of the company, which they can then resell to the public for a profit.

This money is not to allow for a liquidation, if they were going to liquidate, bankruptcy protection allows the same thing.

They will certainly sell some assets, but to say the company is done for and won't exist in the future or won't return to a more reasonable market cap considering it's financial and insurance portfolio, is well silly.

[Kranar]

They will certainly sell some assets, but to say the company is done for and won't exist in the future or won't return to a more reasonable market cap considering it's financial and insurance portfolio, is well silly.

Well the great thing about the stock market is that when all is said and done, you can always put your money where your mouth is. If you think this company is going to go up in the future, buy a crap load of it now. I shorted this thing on Monday before it was put on the hard to borrow list to prevent further short selling of AIG. Just since you posted your claim an hour ago that AIG would recover and that everything is a-okay with a bank facing massive liquidity problems, AIG has dropped in value 10%. In one hour, it dropped 10%.

But of course I'm the one with the mystical crystal ball. It couldn't possibly be you who's silly claiming that a company currently worth 6 billion dollars will return to 180 billion dollars at some reasonable time in the future despite the fact that we're not even close to the end of this financial crisis.

Heck, just since I began to write this post 6 minutes ago AIG dropped another 4 percent.

Oh... there it goes down another percent.

Go ahead... buy it up.

[Clove]

I doubt AIG is going to disappear especially in light of an 85 billion dollar bail-out. If you're thinking short-term 5 years or so... probably not a company you want to have stock in. 10 or 20 or more year view? I'd pick up some AIG stock now.

[sst]

the specific purpose of it is to allow for liquidation CRB.

"An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.

"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement."

http://money.cnn.com/2008/09/16/news/companies/AIG/index.htm?cnn=yes

[Ignot]

Avoid value traps.

[Kranar]

I doubt AIG is going to disappear especially in light of an 85 billion dollar bail-out. If you're thinking short-term 5 years or so... probably not a company you want to have stock in. 10 or 20 or more year view? I'd pick up some AIG stock now.


Okay, I could be wrong so just feel free to explain this to me.

If you think something is not a good investment for 5 years, but it is a good investment for 10 years or 20 years, is this not a logical contradiction?

Essentially you're saying, if you buy AIG now, then in 5 years you'll probably not make any money or make a marginal amount... but if you hold onto it for 10 years, you will be happy.

Now this is purely from a thought experiment point of view as someone without any formal economic/finance education but doesn't that statement imply that you should wait for 5 years, see where AIG is, if you still like it, and then buy it?

Given a 10 or 20 year interval, you're saying the first 5 years won't be that great, but the last 5 years or 15 years will be great. Just wait 5 years then.

[Parkbandit]

I'm waiting for all the old people to get out of AIG before I buy. It's not hit bottom yet.

[crb]

Well the great thing about the stock market is that when all is said and done, you can always put your money where your mouth is. If you think this company is going to go up in the future, buy a crap load of it now. I shorted this thing on Monday before it was put on the hard to borrow list to prevent further short selling of AIG. Just since you posted your claim an hour ago that AIG would recover and that everything is a-okay with a bank facing massive liquidity problems, AIG has dropped in value 10%. In one hour, it dropped 10%.

But of course I'm the one with the mystical crystal ball. It couldn't possibly be you who's silly claiming that a company currently worth 6 billion dollars will return to 180 billion dollars at some reasonable time in the future despite the fact that we're not even close to the end of this financial crisis.

Heck, just since I began to write this post 6 minutes ago AIG dropped another 4 percent.

Oh... there it goes down another percent.

Go ahead... buy it up.
What goes up quickly, can go down quickly, and what goes down quickly, can go up quickly.

Most of these financial losses are on paper from companies valuing subprime mortgage backed securities at $0, which is stupid considering the land the houses are built on is worth more than that.

Furthermore, AIG really doesn't have these losses, insomuch is they have liabilities as insurer for some of these securities. It all balance sheet accounting, all on paper.

I am not going to invest in AIG now because there is going to be massive share dillution. That doesn't mean that I'm wrong when I say the government, who now owns 80% of AIG, which they got for free basically (the loan bears interest, and even after it is paid off, the fed will still own 80% of AIG), isn't going to make a profit in the long run.

As opposed to you saying the company will cease to exist. If you really think that, you lack a fundamental understanding of the situation. You're way to caught up in watching a share price.

[crb]

Okay, I could be wrong so just feel free to explain this to me.

If you think something is not a good investment for 5 years, but it is a good investment for 10 years or 20 years, is this not a logical contradiction?

Essentially you're saying, if you buy AIG now, then in 5 years you'll probably not make any money or make a marginal amount... but if you hold onto it for 10 years, you will be happy.

Now this is purely from a thought experiment point of view as someone without any formal economic/finance education but doesn't that statement imply that you should wait for 5 years, see where AIG is, if you still like it, and then buy it?

Given a 10 or 20 year interval, you're saying the first 5 years won't be that great, but the last 5 years or 15 years will be great. Just wait 5 years then.
I bet 18 months. Fuck 5 years. 18 months. Maybe even 12 months, but to be safe, 18 months. Certainly within the 24 months of the loan term. I don't know why clove was looking at 5 years, that is a pretty long period of time for this really.

AIG is the largest insurance company in the world, they are profitable, and have tons of assets that far dwarf the loan amount. All they lacked was liquidity. This gives them liquidity, operating capital. When things turn around they'll bounce back just as quickly as every other financial company.

Mortgage applications are up, inventory is down. oil prices are falling, the economy is growing at suprising levels (3.3% in q2). I think we're turning the corner here. I think we'll see good q3 and q4 earnings, we'll probably get a santa claus rally. Then on 09 all these writedowns will become writeups, freeing banks and other financial institutions from regulatory capital requirements which created the downward spiral. At the end of 24 months the fed will have received it's 85 billion back, plus interest, and will sell it's equity stake for a tidy profit. Then oil will start going up again.

[NocturnalRob]

Then oil will start going up again.

rinse, repeat.

and i think you're a little optimistic with that 18-24 month timeframe, crb. as much as I would like to think that the market is done shitting itself, I still don't think we've gotten through the fallout of the subprime debacle. still.

[sst]

WAMU still is on its way to fail after that i dont think ive heard of any other big banks in trouble.

[Ignot]

take a look at the calls/puts. i can't say it looks like a good outlook on AIG but the bottom line is nobody really knows what is going to happen. if you wanted to make an educated guess and gamble then do so, that's what the market is all about so i don't think its fair to say anyone is right or wrong.

again....AVOID VALUE TRAPS!

[Kranar]

WAMU still is on its way to fail after that i dont think ive heard of any other big banks in trouble.


Pull up a chart of Morgan Stanley or Goldman Sachs, both down like 20-30% today. 20-30% is a monster move for a single day.

It can get worse.

[ClydeR]

Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday's $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.

"They pretended they were drawing a line in the sand with Lehman Brothers but now two days later they're doing another bailout," said Nouriel Roubini, a professor at New York University's Stern School of Business.

"We're essentially continuing a system where profits are privatized and...losses socialized," Roubini said, adding that auto makers, airlines and other struggling businesses would no doubt be asking for government help too.

More... (http://www.reuters.com/article/newsOne/idUSN1644235820080917)

Indeed other businesses will line up with their hands out. I explained in another thread (http://forum.gsplayers.com/showpost.php?p=786015&postcount=1) how the auto makers have cleverly used the political season to position themselves for a nice bailout.

[ClydeR]

If it was such a good deal, then why didn't private investors bail them out? The government is the lender of last resort. The reason the government did the deal is because no one else would.

[Clove]

Okay, I could be wrong so just feel free to explain this to me.

If you think something is not a good investment for 5 years, but it is a good investment for 10 years or 20 years, is this not a logical contradiction?Well I think you have ample experience in markets (equivalent to formal education) and it's only my opinion that AIG will recover and be worth (much) more in the long run than it's selling for now.

Why would "it's going to take a long time to recover" be a logical contradiction? If you were focused at year over year growth or even 5 year growth for Amazon.com when it was beginning you'd have RAN with your money. I believe its investors pumped money into it for 12 years before it even became profitable, let alone the juggernaut it is today. It simply took a long time.

Some investments are short turnover 1 or 2 years. Some are for medium durations like 5 or 10 years. Some investments you expect (hope) to pay off over long-term like 20 to 30 years.

I think AIG is headed for a nasty, rocky road for the next few years; but my hunch is it will survive and ultimately recover. My hunch is also that right now will be some of the lowest prices you'll ever see for AIG.

[Kranar]

Why would "it's going to take a long time to recover" be a logical contradiction?


I could have simply misunderstood you.

What I am trying to get at is, how can an investment be solid over 10 years, but not for the first 5 years? If an investment will be good over 10 years, but the first 5 years will be shaky or just some what profitable, then in my mind that means to wait for 5 years before investing in it.

As it relates to this topic, I would think that in the long run it's taking a major gamble to invest in AIG. I wouldn't want to be the guy who thinks he can call the bottom of a very complex financial crisis. I heard a lot of these PhD guys and economic gurus say we hit the bottom back in July, and before then they said we were good to go back in like February. Watching academics and gurus constantly try and predict the future has made me cynical of anyone who thinks they know what's going to happen a year or two years from now. These guys are allowed to make major claims like these with little to no consequence if they're wrong. Half the time they're right and everyone thinks they're a genious for it (Jim Kramer), and half the time they're wrong and it's just dismissed as part of the randomness of the market.

If it's true that AIG is going to recover, then just wait for the volatility of the stock to go down and catch it on the way up when it's worth 4-5 dollars. Heck if it's really going to balloon up to the 100+ billion dollars CRB thinks it will go back to, what's the point of taking the shares now?

When I said AIG was done, it was because based on what the Fed has said with respect to their intention with the loan, they wanted to liquidate AIG assets. The government isn't owning 80% of AIG because they want to get into the insurance business, they did it because if AIG had to liquidate their assets overnight it would have been a disaster. That's not me with a crystal ball claiming this, that's from a quote from an Fed official. Despite their assets, AIG can not function as a business without liquidity.

I guess time will tell though.

[Clove]

Time will tell and I can't claim that my hunch is any better than the next guy or that the experts or the Fed is wrong. It's just my feeling that this loan will give them the liquid assets they need for a comeback.

As for the "wait and see" mentality, I don't dispute that that may be a safer strategy, I just believe the best prices are here today, while blood is in the water and in 5 years if things stabilize they may not be this low again. I stand behind my statement that an investment may be unsuitable for a short-term turnover, but better suited for a long-term turnover. AIG strikes me as one such investment. It looks horrible today, but I believe they are going to turn around.

[crb]

take a look at the calls/puts. i can't say it looks like a good outlook on AIG but the bottom line is nobody really knows what is going to happen. if you wanted to make an educated guess and gamble then do so, that's what the market is all about so i don't think its fair to say anyone is right or wrong.

again....AVOID VALUE TRAPS!
no comment on your post, but man that avatar has a hot ass.

[crb]

I could have simply misunderstood you.

What I am trying to get at is, how can an investment be solid over 10 years, but not for the first 5 years? If an investment will be good over 10 years, but the first 5 years will be shaky or just some what profitable, then in my mind that means to wait for 5 years before investing in it.

As it relates to this topic, I would think that in the long run it's taking a major gamble to invest in AIG. I wouldn't want to be the guy who thinks he can call the bottom of a very complex financial crisis. I heard a lot of these PhD guys and economic gurus say we hit the bottom back in July, and before then they said we were good to go back in like February. Watching academics and gurus constantly try and predict the future has made me cynical of anyone who thinks they know what's going to happen a year or two years from now. These guys are allowed to make major claims like these with little to no consequence if they're wrong. Half the time they're right and everyone thinks they're a genious for it (Jim Kramer), and half the time they're wrong and it's just dismissed as part of the randomness of the market.

If it's true that AIG is going to recover, then just wait for the volatility of the stock to go down and catch it on the way up when it's worth 4-5 dollars. Heck if it's really going to balloon up to the 100+ billion dollars CRB thinks it will go back to, what's the point of taking the shares now?

When I said AIG was done, it was because based on what the Fed has said with respect to their intention with the loan, they wanted to liquidate AIG assets. The government isn't owning 80% of AIG because they want to get into the insurance business, they did it because if AIG had to liquidate their assets overnight it would have been a disaster. That's not me with a crystal ball claiming this, that's from a quote from an Fed official. Despite their assets, AIG can not function as a business without liquidity.

I guess time will tell though.
Check out AIG's chart. That is a fucking cliff, there can be an other side to it. If they get through this liquidity crisis and people then put a realistic multiple on their earnings they will find them very undervalued and they'll go up, as well all banks that survive.

I think its fairly safe to say, as the original point I was trying to make, that this isn't so much as a bailout as an investment for the fed, overall they should make a profit on this loan arrangement.

[Mistomeer]

Check out AIG's chart. That is a fucking cliff, there can be an other side to it. If they get through this liquidity crisis and people then put a realistic multiple on their earnings they will find them very undervalued and they'll go up, as well all banks that survive.
How? With what? AIG has a gross profit of $4.3b or so a quarter and 8 quarters to pay back a loan of $85b. Add to that the fact that investor confidence in the company is completely gone and the market is still plummeting.


I think its fairly safe to say, as the original point I was trying to make, that this isn't so much as a bailout as an investment for the fed, overall they should make a profit on this loan arrangement.
No, this is a bailout. The Fed didn't look at the cluster fuck that is now AIG and think, "Wow, what a steal. Let's buy 80% of that." The Fed realized the disastrous affect AIG suddenly collapsing and bailed them out.

You may be the only person on the face of the Earth that thinks the Fed is going to turn a profit on the $85b loan 24 months from now. Like Kranar said, if you're so sure of AIG's impending success, now is the time to buy.

[Tsa`ah]

I say you should put your life savings into it ... just don't come to the PC crying when you have to make a margin call.

[Kranar]

I say you should put your life savings into it ... just don't come to the PC crying when you have to make a margin call.


It came back up to 4 dollars because of the incredibly irresponsible action of the government.

If it weren't illegal to short sell I would have shorted heavily. All this temporary bailout is doing is allowing people who have shares of banks one last opportunity to get the hell out of their position. And all this at the expense of the tax payer.

Yep folks, it's election season, when the government is too much of a pussy to do what needs to be done to fix close to a decade of corruption and stupidity.

[BigWorm]

It came back up to 4 dollars because of the incredibly irresponsible action of the government.

If it weren't illegal to short sell I would have shorted heavily. All this temporary bailout is doing is allowing people who have shares of banks one last opportunity to get the hell out of their position. And all this at the expense of the tax payer.

Yep folks, it's election season, when the government is too much of a pussy to do what needs to be done to fix close to a decade of corruption and stupidity.

I don't understand this at all. How the fuck can they make it illegal to short sell during at time PERFECT for short selling...? They are trying to blame short sellers for the current problems like they did "speculators" in the commodities market.

[Parkbandit]

I don't understand this at all. How the fuck can they make it illegal to short sell during at time PERFECT for short selling...? They are trying to blame short sellers for the current problems like they did "speculators" in the commodities market.

Not a big surprise you don't understand... But it's basically an emergency decision to head off people from selling some 800 financial stocks to buy them back later on cheaper... and pocketing the difference. No one is blaming short sellers for anything, it's merely a temporary measure.

[BigWorm]

Not a big surprise you don't understand... But it's basically an emergency decision to head off people from selling some 800 financial stocks to buy them back later on cheaper... and pocketing the difference. No one is blaming short sellers for anything, it's merely a temporary measure.

Why is this wrong? Why can't we let the invisible hand of the market determine prices? How is short selling during this time different than any other time? I know some of the European markets did it as well, but I thought our country was a little more laissez-faire.

[Parkbandit]

Looks like AIG was a good deal today. Up 62%

[Parkbandit]

Why is this wrong? Why can't we let the invisible hand of the market determine prices? How is short selling during this time different than any other time? I know some of the European markets did it as well, but I thought our country was a little more laissez-faire.

Because of the volatility of the current market. The Fed took this measure to try and provide some artificial stability while the market corrects itself. It's temporary and necessary to safeguard the financial stocks to prevent panic selling.

[Mistomeer]

It's all bullshit. The market did great today, but give it two weeks when you can short again and watch another large financial crumble.