Posted On: September 29, 2008, 1:47 pm CDT

Posted By: Barry

A good stream of opinions on the topic. I have looked at this issue hard on behalf of my business and clients. If you look at AIG's financial statements, you realize AIG is truly a remarkable company with over $1 trillion in assets (good long-term assets) and operating internationally in over 130 countries, well beyond their next largest competitor. They are a unique machine built by Hank with momentum up until recently. AIG parent is short-term cash strapped, not insolvent (FAR from it). Remember, AIG invested in relatively secure mortage-backed derivatives, just like most financial companies. These were not junk bonds. Traders stopped buying these instruments a year ago due to default rates. As such, AIG is having big (paper loss) write downs due to GAAP accounting rules which is finally taking a toll on their short-term cash-position. They may get to write alot of this back into their results if the derivatives market comes back from $0 in the next year or so. US economy (specifically mortgage defaults) are driving this issue. Without the ability to sell these derivatives and the price of stocks/bonds going down, they need short-term cash in a hurry and don't want a fire sale of good assets to get it. AIG is a good company with great underwriting (Commercial ins. at 93 combined ratio). The $85 billion is a line of credit to allow AIG time to properly get the best price for their asset sale (2 years total), so no fire sale needed. If you truly think the government is running and dictating AIG assets for sale (and wants to own/run it), then I can't help your logic. AIG is no typical P&C company (look at their annual statements). If AIG defaults after 2 years, then yes, we own what's left. However, with $1T in good assets and very profitable insurance operations (for the most part), if they can't ante up what they borrow against the $85B, I would be absolutely shocked. Bottomline, I need AIG for what they can do in the marketplace, and AIG needs me to not be reactionary right now. It is far too early to start moving business when there is no immediate need to do so. You have time to see how things turn out and decisions to be made/announced by AIG in the coming month or two. Don't be another knee-jerk reaction to sensational news without a proper understanding of what AIG brings and can bring to the table going-forward. DO your own research from AIG's own filed documents. My opinion.