This morning the government officially announced plans to prop up AIG with another $30 billion, deeming the potential systemic risk of a collapse to be too great. Perhaps we should stop calling this a bailout of AIG, which, after all, has seen its stock killed. It’s basically worthless. It’s the company’s counterparties that are getting bailed out each time.
Everytime AIG has reworked its deal, we’ve been sure that it wouldn’t be the last time, and again, it doesn’t look like this will be either.
As significantly, the restructuring components of the government’s assistance begin to separate the major non-core businesses of AIG, as well as strengthen the company’s finances. The long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm. This will take time and possibly further government support, if markets do not stabilise and improve.
In other words, it’s a matter of when, not if AIG’s counterparties will need to be bailed out again.