"Bailout" for AIG, but not Lehman Bros. or Merrill Lynch
 

"Bailout" in quotes because it's a loan with some pretty thick strings attached. Either way, the feds have rescued them.

Was it a wise move?

http://www.economist.com/finance/dis...tures_box_main

I'm guessing it'll be years until all the ramifications come to light, but what are the initial thoughts?

Financial guys?

My thoughts are I still don't know what it is exactly AIG does that makes it so important. All I keep hearing is that it's ginormous so I guess that's good enough reason for me. I trust that the government knows what they're doing.

There had to be a bailout. The negative ramifications of the alternative were too frightening to consider.

Whether this bizarre publicly-underwritten version of the world's largest underwriter is the best bailout, I have no idea.

We need Pelagius to stop lurking and give us his thoughts.

I agree. Perhaps he's still busy trying to console his students over the underwhelming performance of their Buckeyes on Saturday.

Please surrender your proof of Wyoming Residence immediately. You're being deported to the east coast.

I'm well within the big tent of Wyoming political thought. I think the government knows what's right, just not what's right for me.

AIG is gigantic. Almost all divisions of AIG are quite profitable. They just have one or so that were involved in complex derivatives transactions that was losing huge amounts of cash. AIG needed about $70 billion to make payments coming due for that division. AIG's credit rating was then downgraded, making it almost impossible for them to obtain additional needed financing. In stepped the government with a "bailout."

This could wind up being hugely profitable. The money loaned to AIG is at LIBOR plus 8.5% (which is about 11.5% right now). Plus, the government gets almost 80% ownership of AIG. They can sell off bits and pieces of AIG (which are hugely profitable) in an orderly fashion and make a ton of money in the process. The markets will like the orderly restructuring as opposed to the fire sale that would have happened if the government doesn't step in.

it was so potentially hugely profitable, than no one in the private sector wanted to do it.

Wise skepticism of government's ability to do anything orderly or in a profitable manner. The US Postal Service is a model of efficiency and profitability.