At the beginning of its trouble, AIG held $2.7 Trillion dollars worth of exposure on the derivative market. Now that the United States Government has given the company $180 Billion dollars of bailout money, they still have $1.5 Trillion in exposure. To make matters worse, AIG’s fourth quarter loss of $61.7 Billion was the worst corporate loss in U.S. history.
We believe that AIG needs to go into prepackaged bankruptcy for three reasons:
- It has required $180 Billion of taxpayer money to reduce the company’s exposure by $1.2 Trillion, and we can expect, given the company’s general financial health, that reducing this exposure to a “normal level” will require billions more from taxpayers.
- The money given to AIG by the government was given under the assumption that the vast majority would go towards paying off obligations which, if left unpaid would prove disastrous to America. However, because the company is still in operation, it must legally honor its obligations – a significant portion of which do not represent systemic risk to the American economy. For instance, $33 Billion dollars were paid to foreign banks by AIG, which means that some of the money Americans gave the company in order to save the American economy had to be spent saving a foreign economy instead. Going into prepackaged bankruptcy, gives the government the power to sort through AIG’s obligations in order to determine which represent systemic risk and which do not. Then AIG and the U.S. government can only honor the ones that represent systemic risk to the U.S. economy.
- At the beginning of AIG’s collapse, letting the company go under would have caused a panic. However, since that time, the public has become inundated to the economic problems that the country now faces. We have seen our money used scandalously by AIG, and we have seen other economic giants go safely into prepackaged bankruptcy. Clearly, Chrysler’s bankruptcy has shown all of us a real world example of the effectiveness of a prepackaged bankruptcy vs. the endless transfer of wealth from the American taxpayer to insolvent companies.
We are ready to let the teetering company tumble. The time has come. In fact, it’s long overdue. By taking AIG into prepackaged bankruptcy, we will have the opportunity to clean house.