AIG: $150 billion money pit and more to come.....

[Islandman]

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

[Lazie]

groan ....

[Assasin]

So we can simply say the Bush bailout was giving away money?

As one analyst said if they had given each household 100,000 dollar each and we paid down on our mortgages then we would be in a better position today but no, give it to the bank and people still can't pay their mortgages and car payment.

[Me]

They need to quickly sell all good parts of that company (and there is quite a bit). Govt going to have to start forcing come transactions to go through.

[Islandman]

The Bush/Paulson bailout was generally poorly implemented but letting AIG go bankrupt was not an option at the time, and it is not an option now. Way too many counterparties would go bust at the same time including the banks, pension funds and countless insurance policies.

Probably the biggest mistake of this crisis so far, (in retrospect) was making Lehman Brothers go bankrupt. It was typical Bush/Republican ideology at play and the result was disastrous and still being played out.

I think we are at the point where nationalization in some shape or form is just about the only option for these large financial clearing houses. Looks like Citi is already there or will be there by the end of the week.

[Assasin]

the biggest mistake was not having a housing bailout a year ago.

without money to pay these bank there is no chance of recovering no matter how much money they sink in it because it now global.

[Me]

A housing bailout at that time would simply postpone what is going on now for a couple months. This problem was always global.