AIG's Bailout Shows A Smarter Way To Rescue System

Have you seen AIG’s stock lately? It’s back up to $5. This after an 11th-hour Fed bailout on the eve of the company’s bankruptcy last week.

Note that the Fed hasn’t actually pumped any money into the company yet. Note that it didn’t waste shareholder money buying jillions of dollars of crappy assets. Note that it didn’t take the problem off AIG’s hands.

What did it do instead? It said, in effect, “we’ll agree to lend you the money you need…in exchange for 80% of your company.”

And what’s happened since?

AIG’s panicked shareholders, who would have been nearly wiped out by either the bankruptcy OR the Fed’s bailout have suddenly gotten their butts in gear. Today’s scuttlebutt is that they’re throwing together a plan to save the company themselves, so it doesn’t need to access that painfully expensive Fed credit line.

So what about similar guarantees to the rest of the financial system–in the form of equity infusions?

Sure, we’ll save your arse. So tell your shareholders and creditors to stop worrying. But it will cost you an arm and a leg. So unless you want your shareholders to completely take it on the chin, get out there and raise the equity you need and/or find someone like Lone Star to take your crap assets off your books right now. You’ve got 30 days.

See Also:
Paulson Plan Will Screw Shareholders; Here’s a Better One

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