AIG, Private Equity and Venture Capital

AIG: Maurice Greenberg's piece in today's Wall Street Journal nearly provoked an attack of apoplexy. I'm not sure if I've read such a slanted, self-serving editorial in a long, long time. I'm pretty shocked that the WSJ would publish such pandering drivel. Be that as it may, we all know that the Big Mo controls gobs of AIG shares both directly and through his management of CV Starr, so let's just say that we know where he is coming from. When he starts out with the bailout-inconsistency argument, he kind of had my ear. But when he went on to praise the Citigroup package while chastizing the AIG deal, I couldn't help but call bull$hit.
https://telegra.ph/1Z0-516-Pdf-Questions-Is-Sure-To-make-An-Effect-In-your-1Z0-516-Exam-11-29
https://telegra.ph/1Z0-068-Pdf-Questions-Is-Certain-To-create-An-Influence-With-your-1Z0-068-Exam-11-29
https://telegra.ph/1Z0-439-Pdf-Questions---The-Ultimate-Manual-To-1Z0-439-Exam-11-29
https://telegra.ph/Why-1Z0-479-PDF-Questions-Would-be-the-Only-Skill-You-really-need-For-1Z0-479-Exam-11-29
https://telegra.ph/Consider-Advantage-of-1Z0-053-Pdf-Questions-And-Increase-your-1Z0-053-Exam-Skills-11-29
To date, the government has shown everything but a consistent approach. It didn't give assistance to Lehman Brothers. But it did push for a much-publicized and now abandoned plan to purchase troubled assets. The government also pushed for a punitive program for American International Group (AIG) that benefits only the company's credit default swap counterparties. And it is now purchasing redeemable, nonvoting preferred stock in some of the nation's largest banks.

The Citi deal makes sense in many respects. The government will inject $20 billion into the company and act as a guarantor of 90% of losses stemming from $306 billion in toxic assets. In return, the government will receive $27 billion of preferred shares paying an 8% dividend and warrants, giving the government a potential equity interest in Citi of up to about 8%. The Citi board should be congratulated for insisting on a deal that both preserves jobs and benefits taxpayers.

But the government's strategy for Citi differs markedly from its initial response to the first companies to experience liquidity crises. One of those companies was AIG, the company I led for many years.

The maintenance of the status quo will result in the loss of tens of thousands of jobs, lock in billions of dollars of losses for pension funds that are significant AIG shareholders, and wipe out the savings of retirees and millions of other ordinary Americans. This is not what the broader economy needs. It is a lose-lose proposition for everyone but AIG's credit default swap counterparties, who will be made whole under the new deal.
The government should instead apply the same principles it is applying to Citigroup to create a win-win situation for AIG and its stakeholders. First and foremost, the government should provide a federal guaranty to meet AIG's counterparty collateral requirements, which have consumed the vast majority of the government-provided funding to date.