EconInvestor

The Wall Street Journal has an excellent article that follows the events that led to the Fed bailout of AIG. (  Bad Bets and Cash Crunch Pushed Ailing AIG to Brink ) What is surprising is how AIG kept underestimating the amount needed to keep solvent. First it was $20 billion, then $40 billion, then $60 billion, then $70 billion, then $80 billion.  How can management put together a deal when it doesn’t know its financial position?  The answer is: it can’t.

It is clear now why Hank Greenberg’s attempt at a bridge loan failed.  The numbers were probably much bigger than what he was initially told.

I’m still trying to digest the Fed’s move on AIG. One interesting article is  AIG’s businesses for sale as bailout buys insurer time . In the comment section, someone pulled from Bloomberg, the following:

“Greenberg, who remains one of the company’s biggest stakeholders, said the company needed a bridge loan instead of a plan that put the company under government control. An investor group led by Greenberg said in a federal filing hours before the rescue was announced it might want to buy the company or some units or make loans to AIG.”

“`Why would you want to wipe out shareholders when you just need a bridge loan?” Greenberg, 83, said in an interview before the announcement. `It doesn’t make any sense.’ Greenberg declined to comment after the Fed announcement, spokesman Glen Rochkind said. ”

It is easy to second-guess, but it does make one wonder if a non-government bridge loan could have been made instead of the government loan.