Monday, March 02, 2009

The Most Humongous Loss



That would be the one AIG is going to report for its last quarter: 62 billion smackers!

AIG is too big not to be saved, though. It reminds me of those science-fiction monsters which canNOT die, whatever body parts get cut off. New ones simply grow in their places: A lost eyeball sprouts seven mouths and so on.

So if we can't kill the bugger, what can we do? Bail it out over and over:

The intervention would be the fourth time that the United States has had to step in to help A.I.G., the giant insurer, avert bankruptcy. The government already owns nearly 80 percent of the insurer's holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company's toxic assets.

Federal officials, who worked feverishly over the weekend to complete the restructuring, said they thought they had no choice but to prop up A.I.G., because its business and trading activities are so intricately woven through the world's banking system.

But the deal also presents more financial risks to taxpayers at a time when the public and Congress have been sharply questioning the wisdom of risking federal money to bail out private enterprises.

I wouldn't call AIG an 'insurer', though. It does have a proper insurance department (which does well, incidentally), but most of its so-called insurance consisted of credit-default swaps, and that part of the business didn't have the capital requirements of the regulated real insurance business. This article spells out what went on well (and chillingly). Funny how even the experts assumed that housing would go on appreciating forevermore.

Sigh. It's probably true that AIG has to be bailed out again and again, because the alternatives are too scary to contemplate. But I do hope the proper regulations will be written and applied to financial markets from now on.