AIG: $61 Billion Loss, New Bailout

AIG reported a net loss of $61.7 billion in the fourth quarter of 2008 which brought 2008 losses to $99 billion.  I'll give you a moment to digest that information before moving on.  Once you stop crying we can discuss the breakdown of the losses, which are actually sort of funny because they come from pretty much every single department.  For those interested in the gory details, AIG breaks out the losses in a handy table here.  Highlights include $25.9 billion in "market-disruption related adjustments" (aka "bad investment decisions we made",) $21 billion from tax benefits not obtained for losses incurred during the quarter (aka "we no longer pay taxes as we only suck money out of the government") and $6.9 billion related to the Fed credit line (aka "at least the Fed makes us pay for bleeding the Treasury dry.")

The "good news" is that AIG will get yet another $30 billion in new government capital and the government will convert its existing $40 billion of preferred shares into new preferred shares that more closely resemble common stock (i.e. they don't get a dividend and are worthless.)  Under the new terms, the Treasury is to get a 77.9% equity interest via preferred stock on Wednesday.  The Fed will take up to a $26 billion preferred interest in two AIG life insurance subs as well as make $8.5 billion in new loans to benefit the domestic life insurance subs of AIG.  Additionally, the interest rate on the existing credit facility will be modified to reduce the existing floor.  If you don't understand the finer points of the new government bailout, don't worry.  I admit I haven't spent significant time analyzing it either.  But I get the big picture which hasn't really changed in the past year.  AIG took too much risk and blew out.  The government is just trying to unwind the business with the least amount of disruption to the market and economy.