With AIG securing a major restructuring of its loan deal from Uncle Sam, you have to hand it the company's former CEO, Hank Greenberg, who after laying low for more than three years, has reemerged as a major player, having been calling on the troubled carrier's senior management to renegotiate with federal policymakers for weeks now.

Did Mr. Greenberg's public calls for AIG to get a better deal from Washington help turn the tide? Or was it just that Hank had the luxury of speaking out publicly, while current CEO Ed Liddy had to play his cards close to his vest?

I say that even if AIG had been working behind the scenes to set the stage for this loan renegotiation for some time, pressure from a revitalized Hank Greenberg couldn't have hurt, as he no doubt still has some friends in the government. His opinion is still respected by the media and business community as well.

I seconded Mr. Greenberg's call for a renegotiation in my blog entry on Oct. 22.

Back then, I wrote that “as disappointed as I am with the irresponsible lack of risk management within AIG on the subprime derivative products that has nearly ruined one of America's most successful and prominent companies, it makes no sense to take punitive steps if it will defeat the purpose of granting the government loan in the first place–to keep the company stable and give it a chance to turn itself around. If that means rethinking the terms of the original loan, so be it.”

Mr. Greenberg had argued that the hastily negotiated terms of the original $85 billion loan were so onerous that it might have made more sense for AIG to just declare bankruptcy. I would not have gone that far, as the shock waves of an AIG bankruptcy filing would have been far more destructive than the terms of the bailout loan provided by the government.

However, once AIG secured its bailout loan, it was clear that it was going to take a lot longer than anticipated to sell off enough assets to repay the government in this grim economy and tight credit market, and that the original interest rates were far higher than the terms granted to financial institutions tapping the government's $700 billion Temporary Asset Recovery Program.

Thus, I think Treasury and the Federal Reserve made a smart move. (For full details of the new deal, click here.)

There are those who will howl that AIG is being let off the hook with a sweetheart deal–that beggars can't be choosers, and even that AIG deserved to be punished with harsh terms for its irresponsible trading of credit default swaps.

In my gut, I sympathize with such sentiments, but my head tells me not to cut off our nose to spite our face. We need to do everything possible to make sure AIG recovers–since if it doesn't, it could still take the entire economy down with it, costing taxpayers tens of billions and sending the financial markets into renewed spasms.

However, my one concern is that we've entered a bottomless pit here with AIG's credit default swap liabilities. The government is now on the hook for a phenomenal $150 billion–but in reality, Uncle Sam has bought a naked option on AIG. I can't imagine the government walking away if the bailout turns out to be even bigger down the road. In for a penny, in for an unlimited amount of pounds, I figure.

If things go from bad to worse, could Uncle Sam end up selling off all of AIG's assets–even its property-casualty carriers–to raise enough money to repay the loan? What do you folks think?

Special Reports /

Greenberg Was Right About AIG's Loan!

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