Monday, March 2, 2009

AIG - A Money Pit

Ok, so I don't know about you but my head is spinning! Not only has American International Group (AIG) posted the worst quarterly results in the history of the stock market, but it has been rewarded with more government bailout money! The insurance group managed to lose an historic $61 billion in just three months, and has just been granted access to a further $30 billion from the US government.

It is a mystery to me that American International Group (AIG) can still be a publicly listed company, it is a mystery to me than any single individual would go anywhere near their shares, and it is a mystery to me how they didn't see this coming!

Only the government can provide insurance where private companies cannot - after all, they are the only ones with enough resources available. Essentially, American International Group (AIG) got into the business of insuring a significant amount of the world's financial system against the consequences of a global financial meltdown. The US government had to step in and bail them out because AIG was totally incapable of delivering on that insurance. Ultimately, American International Group's (AIG) business of selling credit default swaps was a huge scam, as there was no way they could ever pay out on them.

The total bailout for AIG so far is in the region of $170 billion, which blows my mind. The worst part of the whole thing is that, I very much doubt that that will be enough. With American International Group (AIG) so intertwined in the global economy, they pretty much have the US government held at gunpoint whenever they need more money because of the disasterous repercussions following potentially bankruptcy of the company. Simply put, the government cannot afford not to bail them out, which is a really scary thought! If AIG were to fail, then the entire global economy would end up in a lot of pain, and very very few individuals would not feel it in some way or another.

Disclosure: At the time of writing the author would not touch shares in American International Group (AIG) with someone else's barge pole.

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