Posted on 10/04/2010 5:30:21 PM PDT by SeekAndFind
laughed when I started seeing stories about AIG paying back the bailout money it has received. I hope I’m wrong, but the math just does not work out. Also, in a fit of hubris, the AIG CEO stated there is no chance of a government loss on this deal. Conversely, I believe there is little or no chance we will get our money back.
Let’s dig into the number just a bit courtesy of Barry Ritholtz and you can draw your own conclusion:
AIG Repaying Uncle Sam? Not By a Long Shot (The Big Picture, Sept. 30, 2010, Barry Ritholtz)
…Let’s take a closer look at the numbers and separate the facts from fiction:
Total Bailout: $182.3 billion dollars
Amount Still Owed: $132.1 billion (as of June 30, 2010)
Shares Outstanding: ~700 million
Current price: $39.10 (+$1.65)
Market Capitalization: ~$27 billion dollars
Today’s transaction was the converting of Preferred Stock that had a nominal value of $49.1billion — but this was privately held stock that did not trade. Its true value is actually unknown.
For valuation purposes, let’s imagine a hypothetical company that has myriad valuable parts worth about $30 billion dollars. But the company also owes over $130 billion dollars to creditors. We would describe that firm as insolvent, and heading towards bankruptcy…
I emphasized that last paragraph so let’s review what it means. AIG owes the government more than $132 billion (with a B). The company is valued by the stock market at approximately $27 billion (also with a B). Therefore, it is worth about $105 billion less than what it owes. As Barry pointed out, we normally describe such an entity as insolvent or, put another way, bankrupt.
(Excerpt) Read more at blogs.marketwatch.com ...
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How can a guy as brilliant as Barry Ritholtz be so stupid at the same time?
He cannot distinguish between market entrepreneurs and political entrepreneurs like AIG.
His solution is more government and more regulation, only this time by apolitical human beings.
What pool of humanity will he draw these “noble-men” from?
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