Wednesday, September 30, 2009

Kill AIG, Now!

"AIG needs to save ILFC without hurting a core insurance business that has equity in the unit. And it must do so without raising the ire of taxpayers and Congress. In other words, AIG must figure out how to feed the beast without being consumed by it. ... Already, there is a consensus that the current ILFC doesn't make financial sense. The business, whose $47 billion balance sheet holds some 1,000 aircraft used to piggyback off AIG's sterling credit rating. That meant it could issue debt at a low cost of just 4% to 5%, buy aircraft and lease them at higher rates. The business was so solid that AIG invested some surplus capital of one insurance subsidiary--used to back policies--directly into ILFC. ... The [Fed] and the Treasury could agree to refinance tens of billions of ILFC debt at below-market rates, a move that would greatly increase their own risk and attract more AIG headlines", my emphasis, Dennis Berman (DB) at the WSJ, 15 September 2009, link:

AIG was as badly managed as GE Credit (GEC). TBTF, anyone? Kill these monsters. Now! DB's analysis stinks. Why should ILFC lend money to an airline at less than the airline's own credit rating justifies? Yves Smith would flunk ILFC in Credit 101. ILFC subsidizes airlines! So did GEC. AIG's putting an insurance sub's money into ILFC shows ILFC couldn't get other financing. The "core insurance business" was hurt when it put money into ILFC. New York's insurance commissioner should not have approved the ILFC investments. ILFC never made sense!

1 comment:

Anonymous said...

New York's insurance commissioner should not have approved the ILFC investments.

Are any regulators "regulated"? Or is every last one "captured"?

I will never forgot a friend who worked at AIG rationalizing their health with the statement "but we just raised $20 billion over night"... which soon became taxpayers backstopping bondholders...

TBTF? ... how about to big to regulate properly?