Can AIG Repay Their Debt To Taxpayers?
Government officials would not lend out billions of taxpayer dollars if they knew the loans could not be repaid, but when the loan is to a company like AIG, how could they ever really know?
I don’t think lawmakers and regulators would knowingly have us foot the bill for bad loans, but their actions demonstrate some severe holes in the area of due diligence. Due diligence is mentioned in many industries, but in the financial world it usually comes up in the realm of accounting, mergers and acquisitions. Since the government did take a major equity stake in AIG, I think this qualifies as an acquisition.
Anyway, the idea behind due diligence is to thoroughly evaluate a potential investment so as not to cause harm to either party.
Since receiving it’s first set of government aid, AIG reported a third quarter loss of over $24 billion versus a $3 billion profit for the same quarter last year. Definitely looks like more harm than good, so the government upped the ante.
Today, the government raised the dollar value of AIG’s loans while easing the terms. AIG has a new tab of $150 billion, the loan portion of which is to be repaid at lower rates and over an extended period. Part of the AIG package is $40 billion in preferred stock sold to TARP (CNBC reported this as the largest TARP investment to date).
The new relaxed terms show that the government will do whatever it takes to prevent AIG from defaulting. It is in the best interest of every taxpayer for them to do so (now that the decision to bail AIG out has already been made), but I hope they won’t have to do much more.
While the initial loan may not have been authorized with the expectation that it would not be repaid, it was definitely authorized under some faulty assumptions.
Tags: AIG, bailout, CNBC, due diligence, TARPRelated Stories
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1 opinion for Can AIG Repay Their Debt To Taxpayers?
Unforgiven: Credit Card Plea Denied
Nov 13, 2008 at 10:47 am
[...] can see how lowering balances and lengthening repayment terms would help borrowers (look at the government and AIG). I can also see how this would help debtors. The delayed recognition of losses can make a [...]
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