Let’s not mince words: AIG is on the hook for $182.5 billion dollars to the taxpayers. And it high-grade, enzyme-free manure to pretend this is going to be repaid anytime soon.

Chief Executive Officer Robert Benmosche may be a nice guy, and possibly capable of squeezing some performance out of AIG, but the massive amounts of money involved means bailout it will be a very very long time coming.

Not likely in your lifetime.

Consider that if the company comes up with an extra $2 billion dollars per year — $1.83 billion too be precise — it would take a full century to repay the taxpayers the $182.5 billion.

Note that AIG’s profit last quarter was $1.82 billion. Thus, they could accelerate the repayment dramatically if they decided to turn over every last cent of profit to Uncle Sam for every quarter for the next 25 years. That assumes they can continue to maintain profitability, and not have a losing quarter.

I don’t know about you, but I am not holding my breath.

Category: Bailouts

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

60 Responses to “AIG Unlikely to Payback Bailout $ This Century”

  1. DL says:

    Let’s give Obama EVEN MORE vehicles for wasting our money.

  2. bobmitchell says:

    How about the state regulators chasing their tails around to find the money?

    AIG ran circles around regulations, my saying of the year has been that AIG’s core competency was regulatory arbitrage.

    There was a recent piece, I believe in the NYT, that described AIG as having the appearance of value, but when you actually tried to chase it down there was none, or it was as equity in another insurance subsidiary in another state.

    How is this different from Madoff? As long as you keep feeding it money it “makes” money.

  3. franklin411 says:

    So what you’re saying, Barry, is that AIG’s profitability will be no better over the next 25 years than it was in the Depression II?

    C’mon now. That’s just silly.

    ~~~~

    BR: So what you’re saying is that AIG’s profitability is somehow dependent upon the business cycle? Aren’t you ignoring the advantage of owning insurers — their cash flow is regular, and not subject to recessionary pressures?

    C’mon now. That’s just silly.

  4. ancientone says:

    BR,

    As I have been pondering why all the “unregulators” (except Greenspan) have been so adamantly unwilling to admit the error in their construct, I think I might have found an answer in a lecture given by Dr. Alfred North Whitehead in Edinburgh in 1927:

    “The requirement of coherence is the great preservative of rationalistic sanity. But the validity of its criticism is not always admitted. If we consider philosophical controversies, we shall find that disputants tend to require coherence from their adversaries, and to grant dispensations to themselves. Thus, after criticism, faulty thought systems do not exhibit mere illogicalities. They suffer from inadequacy and incoherence. Failure to include some obvious elements of experience in the scope of the system is met by boldly denying the facts.”

    Well said.

    Ancient One

  5. DeDude says:

    Now you are presuming that they should not pay any interest on all that good government money. I think they should pay a solid premium for having been saved.

  6. Mannwich says:

    How would we even know for sure if they really did pay the money back? It’s all just funny money now. Money is fast losing all of it supposed meaning.

    I literally laughed out loud when I heard Bloomberg say that the markets were rallying “after AIG said they planned to pay back all the bailout money”. Just too much.

    ~~~

    BR: Even on nominal terms its nonsense

  7. zdog says:

    Bought this pile at $0.37 ($9.25 post reverse split) and wondering how long to wait…

  8. Mannwich says:

    @zdog: Don’t listen to me, but I would say don’t get too greedy. Maybe sell half and keep the other half and let it run a while. Although if the feds are going to continually prop all the TBTF firms, maybe keep it all? Heck, with unlimited backing from our corporatist gov’t, the stocks in those firms could just rise to infinity, no? Although I’m guessing we will reach a point where the backlash will be so bad, that some of these firms will be used as sacrificial lambs (e.g. Citi), so be careful.

  9. jc says:

    AIG was just a conduit to GS and a few foreign banks. Paulson got his waivers from criminal prosecution for his sunday night deals and now all we (US taxpayers) have to do is pay for it. It will pale next to the cost of the CITI and BAC costs. Fortunately hyperinflation will muddy the waters, just need to revise COLA for Soc Sec and other gov programs to shift some of the sacrifices.

  10. ben22 says:

    zdog,

    thinking you are male, you’ve got one huge set buddy, congrats on that trade, I guess that was money you could have lost completely and not cared? Get yourself something nice, that was a sweet trade you made there or maybe it was just crazy.

  11. zdog says:

    @ben22: yep, some funds that I had forgotten about… now wish it had been more, but in that case I probably would have remembered it!

    @mannwich: sold half on the open (may 8th – check the chart for a giggle) and will probably hang on to the rest for the exact reasons you outlined.

  12. ben22 says:

    zdog,

    it makes for a great story then.

    On another, not so green shoots topic:

    People are being told now that the promised GSP college savings plan in pa has liabilities that exceed assets.

  13. Moss says:

    What is the breakdown of the 182.5?
    I thought some if it was in the form of guarantees as opposed to outright cash.

  14. Winston Munn says:

    Hey, anyone can have a bad century. If you don’t believe me, just ask the Cubs….

  15. clipb says:

    aren’t “we” getting paid or accruing interest on the 182 big ones? or is it just some form of “equity”? gee, even 5% annually would mount up after a while, maybe like our compounding capitalized interest on our government debt?

  16. Stillaway says:

    “accruing interest on the 182 big ones”

    In the New Economy, that would be “182 small”.
    Trillion is the new Large.

  17. Pat G. says:

    I’ll leave a note for my great-great grandkids to follow up on AIG’s payoff for me. I’m with DeDude on the idea of AIG paying interest on their “loan”. Because in a hundred years the USD will be worth a lot less (if that’s possible) than it is today.

  18. Winston Munn says:

    Full Disclosure: AIG Sucks.

  19. ancientone:
    That goes for the TradMed(Traditional Media) as well. Meaning newspapers and TV.

  20. call me ahab says:

    BR-

    you are sooooooo negative-

    look- here’s how it goes down-

    AIG makes a 200 billion dollar profit next year- lets say 50 billion is left over after bonuses- then repeats for the next two years-

    see- that was easy-

    100 years?- puhlease!!!- don’t you believe in a resurgent American economy?

  21. franklin411 says:

    @Barry
    How about doing a little research? How about determining AIG’s profitability over the last 25 years? Or maybe over the last 50 years if you want to exclude the crazy profits generated by the tricks of the last 10-20 years?

    Oh, wait. That would be work, and this is just mental masturbation, right?

  22. Andy T says:

    Actually, this gentleman is saying a lot of reasonable things. I mean, heh, if I had just been given a 180bn loan/backstop from Uncle Sam, why be in a hurry to fire sale shit? If you have a 25-40 year time horizon, then they are much better off not selling any of their profitable units. Eventually inflation will take hold in several years. By 20-30 years from now, 180 bones won’t seem like such a big hurdle….

    In fact, I’ll make a sidebet with Barry Ritholtz that neither of us will be able to collect:

    AIG, if allowed to continue to operate, will be able to pay back the 180 billion in the next 30 years.

    ~~~~~~~~~~~~~~~~
    Now, I’m just completely ignoring all the moral hazard implications here. Nobody get’s a lifeline in AT’s libertarian world. Just let it get vaporized. But, if you’re going to toss 180bn at the business, you might as well run it the best you can for the long run.

  23. Andy T says:

    @franklin.

    BR’s terminology for this sort of exercise would be “masturbatory fodder”…..

    as in this comment in regard to debating economic ideology:

    Barry Ritholtz Says:
    August 16th, 2009 at 9:07 pm
    Hence, why so much abstract theory, disconnected from the real world, eventually looks like mastabatory fodder.

  24. franklin420d says:

    Hey Little bro have you ever considered that masturbation is like procrastination: It feels damn good at the time , but then you sit back and think “damn , I just fucked myself”

    Anyway just a thought :)

  25. The Curmudgeon says:

    AIG reported losses of nearly $100 billion in 2008. It is why Uncle Stupid owns them 80%. The same AIG that lost $100 billion no longer exists. It’s nothing more than a GSE for insurance and credit default swaps. If it pays us back, it will be with dollars we gave to it. Neat, huh?

  26. franklin420d says:

    Um ghee Curmudgeon now you make me release I need to revise me question to 411: Have you ever considered masturbation is like giving money to AIG it felt good at the time, but then we sit back and realize “damn, we just fucked ourselves.

  27. jrm says:

    The Swiss gov. has been smarter with their money put in UBS :)

  28. The Curmudgeon says:

    Yeah, and wasn’t UBS one of AIG/USG’s counterparties? It always helps to be the creditor when the debtor has no cajones, which makes fucking yourself hard, but still.

  29. Bruce in Tn says:

    When are the US taxpayers going to pay off the national debt? Better yet, when is the first year the debt actually goes down?

    Hmmm…?

  30. Mannwich says:

    Sorry to be off-topic, but how can we be in a “recovery” when 13% of all mortgages are either in foreclosure or are late with payments? Do we think this is going to improve any time soon? I see more “For Sale” signs popping up even in wealthy neighborhoods. I’m guessing many of those folk have to sell. We are going to see even more foreclosures and late payments in the coming months, I’m guessing. If the employment picture doesn’t get better, I fail to see how the economy can recover, especially if those with jobs are cutting back on discretionary spending. Am I missing something?

  31. The Curmudgeon says:

    Am I missing something?

    No.

    G’night.

  32. call me ahab says:

    BR-

    a la Gladiator- “do I not entertain?”

  33. Andy T says:

    “how can we be in a “recovery” when 13% of all mortgages are either in foreclosure or are late with payments?”

    Well, we’re not actually in a “recovery”. This really is a Great Depression in many parts of the U.S. The key difference is that this time we’re not the creditor/exporter to the world; we’re the big importer/debtor. It’s a hell of a lot easier to wean yourself off imports than it is to force someone else to take the crap you produce that they don’t really “need.” [China in 2007 = U.S. in 1929]

    Another key differential this time around is that food/clothing/shelter can be had for a much smaller percentage of GDP than in 1930s. So, it’s going to be rough as hell, but we should be able to feed and shelter ourselves easier than our great grandparents.

  34. Mannwich says:

    @AT: But the mind-numbing mantra everywhere in the MSM, even on Bloomberg, is that the economy is “rebounding” or “in recovery”. These voices are getting louder too. Listened to Bloomie radio today and that’s all I heard all day. I guarantee you that J6P who doesn’t do his homework (even now) hears this and thinks that recovery is indeed around the corner, so it’s time to buy the stocks, but the dips, if you will. The cognitive dissonance is astounding to me.

  35. Mannwich says:

    This should make a lot of people here at TBP happy about bailing out AIG……from Naked Capitalism. The sheer arrogance is incredible, but to be expected. These are, after all, our modern-day “royals”. We kiss their feet and bow down to them. This from the guy who took a four-week vacation to start his stint at AIG. That’s to be expected as well.

    “Tim Duy pointed out this priceless remark from AIG’s new CEO, Robert Benmosch:

    Benmosche told employees that he “had the luxury to say to the government, I’m not going to rush to do this. I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out. If they want out in a hurry, they shouldn’t have come in in the first place.”

    For anyone who followed the rescue, this is a staggering bit of hubris and revisionist history. First, the idea that the government “came in” implies that this was some sort of normal investment process, as opposed to AIG begging the Federal government for a rescue, even though states, not the national government, are the main regulators of insurance business (the AIG Financial Products business was overseen, if you can call it that, by the Office of Thrift Supervision. AIG structured its operation so as to get them as supervisor precisely because they were guaranteed to do next to nothing).”

    http://www.nakedcapitalism.com/2009/08/aig-gives-uncle-sam-and-us-finger.html

  36. Mark_K says:

    Barry and franklin411, you are both being silly. If AIG could liquidate all of its assets at the values reported in the latest 10-Q, the government could be repaid even if AIG never generated another penny of net income.

    As for quarterly earnings,these mean very little as they are driven by asset valuations more than anything else. Underneath the noise, AIG’s operating companies are dying quickly as going concerns. The insurance operations still have value, but it is being lost quickly, because no one wants to do business with AIG. I think that the government has figured this out, and this motivated the decision to sell the US P&C operations, when previously, the plan was to keep them. The new CEO can talk all he wants about waiting to get a fair price, but if he waits six months, that fair price could drop by 40%.

    I don’t know whether the government will be repaid in full (this seems unlikely to me, but hardly impossible), but it is a complicated equation that includes stuff like the values that AIG’s operations are able to fetch, recoveries on CDOs and dicey RMBS, etc., etc.

    ~~~

    BR: How do you figure?

    They do not have close to $185 billion in assets . . .

  37. Onlooker from Troy says:

    “…they shouldn’t have come in in the first place.”

    You’ve gotta be kidding me! You’re right Mannwich, the arrogance is palpable. Really out of touch, and disdainful of the common folk, no doubt. One day these guys just may be chased through the streets. It just may happen.

  38. Andy T says:

    Jeff. Indeed. These are the moments when it’s very, very difficult to be a contrarian trader. I mean c’mon. You have to have some nerve right now to fade the dollar collapse when you have no less than Warren Buffett lamenting it’s demise in a WSJ OpEd. You have to have nerve to be long U.S. debt given the “mountain of debt” we’re incurring and the “obvious” rise in interest rates we’re facing. You have to be crazy to fade a 50% move from the lows when everyone is telling you its getting better. You’re equally nuts to suggest a bearish game on Gold when every country is debasing it’s currency and inflation is “so obvious.”

    There are old traders and bold traders. There are no old and bold traders. I want to be massively short everything except the Dollar and Treasuries right now, but I just haven’t seen the price action yet to suggest a big “short the world” trade. I’m a smidge long the dollar index at 78.55 from several days ago. It’s the first position I’ve held longer than 24 hours in awhile, and right now it’s a small loser. I’m probably going to hold that one for awhile, but the day trader in me will hate to see prints below 78.20.

    Good luck.

  39. Onlooker from Troy says:

    Andy T

    No doubt. The consensus on inflation and the dollar is overwhelming out there. It’s definitely the conventional wisdom right now with all the personal finance mags and all talking about it and how to protect yourself.

    But like you I can’t afford to walk out in front of that herd yet. But I can’t help but think the timing on that trade is going to come out a lot different than “they” think. It will sure be interesting.

  40. DL says:

    Andy T @ 11:06

    “There are old traders and bold traders. There are no old and bold traders”.

    That’s a good one.

  41. Andy T says:

    Arrghhh.

    Don’t drag me back into that AIG CEO thing.

    Look. You can’t blame the new guy. I’ll be honest with you. I would say the same exact thing if I was running the show there right now. I would tell the government the following:

    “Hey. I’m here to make money running these companies that constitute the outfit formerly known as AIG. I’m not going to sit here and apologize and offer you a million ‘thank you’s’ for bailing this group out. I don’t give a rat’s ass about the past. I’m here to make money right now and organize some sustainable business models. If you don’t want us to do that, then fine. I don’t care. Pull the funding. Liquidate everything. I’ll move on to the next job. If you want this company make money, then please leave us alone. If I fail to deliver results, then I’ll see myself to the exit.”

    That’s the way it works with “turn around” situations. You bury the past and focus on the future. Drop the dead wood from the organization and keep the winners on the bus. Keep moving forward.

    As a shareholder in this company, I like this approach.

  42. Mannwich says:

    @AT: But as 80% owner of the company, the government has at least some say, no? Would any other private majority investor appreciate being backhanded in this manner? I don’t think so…..

  43. karen says:

    Andy, love this line: “I mean c’mon. You have to have some nerve right now to fade the dollar collapse …” That is what we do, isn’t it? Have to catch up with your posts! You’ve been missed!

  44. Mark_K says:

    Just saw the interview and have read a few comments. The CEO is completely and utterly clueless about the situation at the life and PC operating companies (though he is apparently a fantastic success at financing fancy vacation homes, and in a heartbeat I would trade all my PC industry knowledge for the vacation home funding prowess).

    Comments about compensation and turnaround and being deliberate are ridiculous at this point. The operations are zombie operations in the purest sense so long as they stay under the AIG umbrella. They are far beyond hope. This does not mean there is no value value if the operations are sold to a different holding company, but they are beyond toast if they stay part of AIG.

    The rational plan is to carve the pieces. The longer the wait, the greater the likelihood of a bigger hole.

  45. Andy T says:

    @AT: But as 80% owner of the company, the government has at least some say, no? Would any other private majority investor appreciate being backhanded in this manner? I don’t think so…..
    ~~~~~~~~~~~~~~~
    Well, this is not a “normal” situation at all. I would suggest, though, a saavy 80% owner understands what he’s saying “to the troops.” These guys want to feel better about themselves, the work they do, and the company they work for. The vast majority of these folks are probably decent and feel a bit demoralized at this point. I can understand the things he’s saying and the approach….and least it wasn’t:

    “Over? Did you say “over”? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!”**

    **Animal House reference when Bluto was yelling at the guyss who were somber/downtrodden after failing all their classes and getting expelled.

  46. Mannwich says:

    @AT: I don’t entirely disagree but publicly thumbing one’s nose at the very entity (the feds, and by extension, We The Sheeple) that allowed the firm to remain in business (and thus pay those employees actual paychecks) isn’t exactly a productive way to motivate the troops. There are other more productive ways of doing this, IMO.

  47. Mannwich says:

    @AT: I do like the Animal House reference though. I would have much preferred if he had just done that, actually. ;-)

  48. Andy T says:

    Jeff. You raise a good point. This is the deep dark abyss we find ourselves in when we don’t let businesses go bust. I’m just approaching it from the point of view that “what’s done is done.” The money is gone and it’s not coming back this year or next, or next, or next. So, let’s just hope these guys can restore some semblance of order to these various companies so that we can sell them off at reasonable prices several years from now….

  49. I-Man says:

    “freedom lies in being bold.” -robert frost

  50. Thor says:

    Don’t any of you easterners ever sleep? :-)

  51. Onlooker from Troy says:

    Andy

    The thing that bothers me about that quote,
    “…they shouldn’t have come in in the first place.”

    is that it’s just another manifestation of this myth that the banksters et al are trying to propagate that there was never really all that much wrong; that they didn’t really need to be bailed out; that it was just overreaction and overreach by govt; that people just panicked; etc. It’s maddening.

  52. I-Man says:

    How bout that gravestone doji on the SPX 15 min charts… Touching right off the backtest of the broken rising wedge that started on tuesday?

    Coupled with the current action in asia, could be setting up for a confirmation of the sell off.

    http://www.bloomberg.com/markets/asia_index.html

    Good stuff for dollar bulls/equity shorts/commodity shorts. One trade.

  53. I-Man says:

    you know I and I west coast thor…

  54. fubar says:

    Everyone just throws around this $182 billion number. Isn’t that just the total committed to all the AIG bailouts? What does AIG actually still owe? How much of the $182 billion is in undrawn credit? What’s the impact of Maiden Lane II & III and the preferred stakes in Alico and AIA on that number? I’m too lazy to figure this stuff out myself. Why doesn’t someone break down the numbers in more detail?

  55. beaufou says:

    All you have to do is declare that AIG’s shite is worth $180 billion, then the government takes the shite as a reimbursement and then sells it to the Chinese and matches shite for shite.

    Simple isn’t it?

  56. David Merkel says:

    Barry, I said the same in my morning financials report. No way they repay the US government.

  57. william street says:

    Hey BR or anyone, re-read fubar’s post. You guys are all wrong. How much does AIG really owe? Its probably around 60bn. Maiden Lane II and III are probably like 80 bn and doesn’t have to be repaid. Then there’s the govt’s 80% stake. You don’t have to pay back equity. AIG probably does have to pay the credit line which is drawn down by around 60 bn. And that last move putting some life companies in an SPV earned some kind of credit somewhere. I don’t think AIG even owes 182bn. Its much less.
    And while you’re at it, Look at Citi’s 301bn of asset guarantees. That will not be paid back. It was a give away. Not a bailout.

  58. DeDude says:

    “People are being told now that the promised GSP college savings plan in pa has liabilities that exceed assets”

    Those plans were always a disaster waiting to happen. Presumption was that in the long run they would absolutely make a profit. Lots of other insurance products have the same basic flaw. I think that is the main reason that they always seems so determined to rescue the bond holders when things go bad. If they allowed the bondholders to take it then all kinds of sh*t would hit the fan on main street.

  59. karen says:

    This AIG story reminds me of when Sirius Radio hired Howard Stern for such a phenomenal sum that I thot to myself, how is Sirius going to make that kind of money let alone pay a single employee that kind of money…