Black Hole

AIG is a black hole for taxpayer money. Bloomberg has an update.

American International Group Inc. may scrap a plan to repay a $60 billion U.S. government loan by selling businesses, after failing to find enough promising bidders

Translation: AIG is going to stick taxpayers with a $60,000,000,000 loss. And what is a "promising" bidder. They're looking for suckers, not bidders. No one will touch AIG toxic assets with a ten-foot pole.

AIG is proposing additional ways to reduce the company’s debt to the U.S., including handing over stakes in some operations directly to the government

Translation: if we sell the assets, we will have price discovery of the losses. If we just hand it over, we can all hide the losses from the people.

AIG is also in talks about converting the government’s preferred shares, valued at about $40 billion, to common stock, which would reduce pressure on the company’s cash flow, a person with knowledge of that plan said yesterday. The preferred shares pay a 10 percent dividend, while the common pay none

Translation: not only is AIG insolvent, they are practically out of cash as well. They can't afford to pay the dividend on the preferred stock.

Downgrades by Moody’s Investors Service and Standard & Poor’s may force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units could also lose access to the federal commercial paper program if they are downgraded

Translation: AIG is a black hole. With a trillion dollar plus balance sheet, the oncoming additional losses could easily triple or quadruple to $400-600 billion from the current $150.

However, there is no political will to acknowledge losses, and either nationalize these companies once and for all, or let them fail a la WaMu.

In my opinion, WaMu is a success, while Lehman is not. Bankruptcy is too disruptive to the system. However, as long as there is no political will to face the reality of current and growing losses, we will have more and more AIG's in the future.