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Aig Decision Essay

600 words - 3 pages

The U.S. government took power of American International Group Inc. in an $85 billion agreement that revealed the concentration of its concerns about the jeopardy. A subside could pose to the financial system. The step marks a dramatic turnabout for the federal government, which had been robustly defy proposals from AIG for an emergency loan or some intercession that would prevent the insurer from falling into bankruptcy. “There's been criticism of the bailout, but it pales when compared to widespread outrage over the $165 million that AIG paid recently in employee bonuses. Republicans have gone on the offensive against the Obama administration, while Democrats are scrambling to recoup the bonus payments.”( Sorkin) The question that everyone is asking is if they have the legal rights to distribute bonuses to ...view middle of the document...

These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain of its businesses in an orderly manner, promote market stability, and protect the interests of the U.S. government and taxpayers,” the Federal Reserve said in its statement.” (Karnitschnig)
A.I.G. does not have enough assets to cover its private and government accountability. “The outstanding shares the government doesn’t own are worth only $1.5 billion or so. That means the government’s approximately 80 percent interest, for which it paid $40 billion, is now worth only about $6 billion. Even if A.I.G. does pay back the government’s $60 billion loan and the “bad bank” vehicles break even, the implication is that, at best, a quarter of taxpayers’ $150 billion won’t be coming back. Meanwhile, the insurer still had $92 billion of privately held debt on its balance sheet as of the end of September. If the government were to inject more funds into it as preferred or common stock, taxpayers would be behind those lenders in the long line for A.I.G.’s assets.” (Laughlin and Beales) All suggest that giving the company supplementary cash or security would be tossing good money after bad.

As you can see, AIG made a very bad decision which affected everyone. They did what they did because they thought it was a good thing but it wasn’t. They thought that it was legal so they didn’t think it would be a problem but they didn’t think first and now look in the place we are in now. AIG got a bailout and everyone is hoping that they don’t do the same thing again or no one is going to help them. AIG has to be very careful in the decisions they make from now on.

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