Are Hank Greenberg and I the only ones chagrined about Uncle Sam actually owning AIG as part of its bailout package to keep the country's biggest insurance conglomerate afloat? Was it necessary to demand a nearly 80 percent equity interest in the troubled company in return for the Fed's $85 billion line of credit, and could the terms of the deal end up hurting AIG–and taxpayers–in the long run?
The deal is done, and there is no doubt such a deal had to be made–or else the consequences for the U.S. and even the global economy could have been catastrophic.
Still, while AIG required liquidity–the ability to put its hands on lots of cash in a hurry–to stave off a bankruptcy filing, might the strings attached trip up AIG's recovery over the long term?
And isn't it bizarre to have the U.S. government holding the vast majority of AIG's stock, with its shadow looming large over every one of the company's major decisions? How will that work, from a practical standpoint–especially with a change in administrations coming in January?
These are just some of the questions AIG, Washington and the market will have to sort through as the smoke clears and this unprecedented bailout deal is implemented.
Theoretically, this loan only lasts for 24-months, but if AIG still hasn't worked its way out of trouble, that expiration could always be extended, so who knows how long Uncle Sam and AIG will be married?
Hank Greenberg, the iconic former chairman and CEO of AIG, told PBS's Charlie Rose on TV this week that he is not very happy with the way the deal worked out.
AIG didnt need a bailout," he said. "A bailout infers you are insolvent, or you need a capital injection. AIG needed a line of credita temporary infusion of cash. It did not need capital.
I tend to agree with Hank, currently chairman and CEO of C.V. Starr & Company, that the deal itself–even with a crushing 11 percent interest rate–was reasonable. But I also agree with him that by taking 79.9 percent of AIGs equity as part of the deal, that essentially nationalizes the company.
(For more on what Hank had to say, click here.)
My concern is that if the federal government tries to micromanage AIG's day-to-day operations, it will hamstring the company, and perhaps even risk crippling it, thus defeating the ultimate purpose–to keep AIG in business.
What do you folks think?
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