mbrcatz
 |
AIG INSURANCE didn't almost go bankrupt.
And it wouldn't have been a true bankruptcy. The financial problem was due to a law passed by congress, called Sarbanes-Oxley.
Basically, the HOLDING company had investments in "bonds", which were bundled sub-prime mortgages. Now, look at what that is - it's a loan on a property, based on the value of the property. Think about it. It will NEVER be worth nothing. Even in a horrible real estate market, property values have fallen, what, 25%? So the property is still WORTH something, which means, if the buyer defaults on the loan, the property can still be SOLD for something, even if it's 25% less than when the mortgage was taken out.
So, with Sarbanes Oxley, AIG had to report the MARKET VALUE of the bonds, every day. When the subprime mortgage scandal hit, well, no one wanted to BUY these bonds, so the market value of the BONDS dropped to zero. OK, read that again. THE VALUE OF THE BOND DROPPED TO ZERO, because no one wanted to buy it. But the real estate that BACKED the bond, STILL had at least 75% of it's original value, so the ACTUAL worth wasn't zero, was it!
So, on paper, because the PAPER value of the bonds dropped, people panicked, and started selling AIG stock, which is why it went from about $58 a share, to, what, $5 a share?
It's a PAPER LOSS, not a real loss, caused by Congress and this Sarbanes-Oxley business. And you'll never convince me that the bailout wasn't because CONGRESS had a lot of AIG stock personally owned. |
Chris C
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AIG did not almost go bankrupt. They filed for bankruptcy protection, meaning, they are having some financial troubles and they don't want creditors coming in and taking anythign from them which would cause them to go through even more rough financial problems.
AIG's holding company had cashflow problems. All their assets where tied up and not liquid, meaning they were still worth alot of money, however they didn't have any cash on hand to keep up with things. And with the downturn in the markets their assets that were tied up were losing money.
Part of the holding company was heaviliy invested in subprime markets and other things taht have been hit lately, which devalued their assets. Thier insruance divisions were still very profitable, which is why they did not claim bankruptcy and which is why they are easily being sold (IE: AIG Life Canada was sold to BMO just this week).
As for why to invest in them? (this is not a suggestion that you should, but you can research this a little further...). AIG is a HUGE company. They are a major player in China and India for Life and Health insurance. They also have a highly profitable property and casualty division (home/auto insurance) in North America. Thier Life and health divisions in North American and likely in the UK will be sold off to pay off the government loan that they recieved (the 'bailout'....it wasn't a free cash giveaway, it was a 1 year loan at 11% interest). |
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