Why did AIG need bailed out?
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Joined: Oct 2000
Posts: 15,323
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From: Longmont, CO
Step 1) Insure sub-prime mortgage securitizations so they can get a AAA investment grade rating.
Step 2) Start making lots of payouts when those securitizations go belly-up and policy holders demand their money.
Step 3) Run out of cash.
Step 4) Receive $85 billion loan to keep afloat in the short term.
Step 5) Liquidate some of your $1 trillion (yes, trillion) assets to pay off $85 billion loan. This takes time.
Step 6) Cross your fingers that your $1 trillion in assets don't turn out to be a mirage, like with Enron.
Step 7) Pay off loan within the 2-year timeframe its good for. (At 11.5% interest, yes.)
Step 2) Start making lots of payouts when those securitizations go belly-up and policy holders demand their money.
Step 3) Run out of cash.
Step 4) Receive $85 billion loan to keep afloat in the short term.
Step 5) Liquidate some of your $1 trillion (yes, trillion) assets to pay off $85 billion loan. This takes time.
Step 6) Cross your fingers that your $1 trillion in assets don't turn out to be a mirage, like with Enron.
Step 7) Pay off loan within the 2-year timeframe its good for. (At 11.5% interest, yes.)
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Joined: Aug 2008
Posts: 2,708
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Think of it this way, the govt is making a bet while trying to save the company (and economy). If AIG returns to good health, the govt will profit A LOT. The govt holds 80% of AIG's assets.
Remember when the govt loaned Chrysler a couple of billion? Few years later, Chrysler returned to profitable status and the govt reaped $300M in profit.
Remember when the govt loaned Chrysler a couple of billion? Few years later, Chrysler returned to profitable status and the govt reaped $300M in profit.
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