AIG Seeks More US Funds As Record Loss Looms

[donsutherland1]

A record quarterly loss is expected at AIG. Today, CNBC reported:

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.

AIG Seeks More US Funds As Record Loss Looms - Financials * US * News * Story - CNBC.com

 

[donsutherland1]

Given the circumstances, a process modeled after the windup of the failed Long-Term Capital Management hedge fund would probably makes more sense than the current approach of injecting massive taxpayer resources into AIG. That approach could work as follows:

1) Extract the company's viable insurance business and transfer it in part or whole to well-capitalized insurance companies (perhaps even allowing them to bid for a piece of that business) so that any additional injection of fresh taxpayer resources can be minimized.

2) Unwind AIG's other businesses in an orderly fashion. Use such proceeds as are raised in that process to reduce the Treasury's/Federal Reserve's losses.

3) If anything is left afterward, the remaining proceeds could be used to pay other senior debt holders.

All said, I don't believe a strategy of pouring tens of billions of additional dollars into AIG in its current form and under its current management is a prudent approach.