AIG is Toast

So says Felix Salmon:

AIG’s $2.5 billion of 5.85 percent notes due in 2018
plunged 19.5 cents to 33 cents on the dollar as of 9:55 a.m. in New
York, according to Trace, the bond-price reporting system of the
Financial Industry Regulatory Authority.

(quote from here).  33 cents on the dollar? The message is loud and clear: AIG
is toast. This is the massive counterparty failure everybody’s been
scared of, and frankly I’m astonished that the broader stock market
isn’t plunging as a result. No one is prepared for the
repercussions here: the failure of AIG is likely to be an order of
magnitude more harmful than the failure of LTCM would have been. And
it’s not even happening on a Friday, where we could have yet another
Emergency Weekend to try to work things out.

Comments

oh man, this is AIG. an institution that
one thought was invincible. how things turn.

We live in interesting times. I'm going with the conspiracy theory that the PPT is keeping the markets afloat. Don't think that will last long though - there's going to be a run on the market to match the soon-to-be runs on the banks.

What does someone with a decent amount of cash do in this environment?

meter: Stay in cash (and diversify into foreign cash). Most commodities are not doing well now, either, although I am considering an investment in canned goods.

Bloomberg and others are now reporting that the federal government has reversed course and will consider lending to AIG. The stock market is up sharply since about 2:45 pm Eastern time. Tomorrow's apocalypse has now been rescheduled.

to at:

Buy yourself more of an education. If you can't do that, buy yourself a diploma. No better way to spend your cash in a crisis than by getting smarter. (or pretending to)

AIG rose in the afternoon on speculation the feds would cave, then fell again after hours when Sen. Dodd and Shelby displayed a lack of enthusiasm.

Greg A.,

Not necessarily, in fact it could be a hopeful sign. If AIG shares are flatlining, it probably means that the market is anticipating that the federal government will get involved in a bailout, in which case the common shares go to zero like they did for Fannie and Freddie.

Surely the Feds will wipe out the common and preferred and debtholders and try to preserve the derivatives counterparties and the insurance policyholders.

S&P 500 futures are holding up pretty well, above 1200 as I write this. Ie, the market is not anticipating a bad day tomorrow, at this time.

If you bought a Credit Default Swap from AIG, you would be screwed, but the government is bailing you out (you're welcome).

CDS were not bought by moms and pops. They are OTC derivatives products. Since I don't trade these and my company doesn't trade these (exactly because of the risk), I'm pretty bitter that I (along with other taxpayers) am being forced to become a counterparty to a deal which I did not agree to and on terms I don't like.

Yesterday when Lehman wasn't bailed out, I was happy that the bailouts may finally be coming to an end. Now, I'm right back to growing more bitter by the day.

Time to contact Nicholas Nassim Taleb to tell him he's right!

I'm not certain the effect will be to wipe out all shareholders. In this article, it states that "the government will have veto power over the asset sales and the payment of dividends to shareholders."

http://money.cnn.com/2008/09/16/news/companies/AIG/?postversion=2008091700

Maybe dividends is the wrong word and a better phrase is "profits from the sale of assets."

Placing the above in context for you, the reader of the future: the bailout of AIG took place yesterday, overnight, and the market fell sharply today nonetheless.

Will AIG let their shares go to zero be for bankrupts

What will happen if AIG let their shares go to zero or bankrupts.

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