AIG (NYSE:AIG) agreed to convert preferred shares given to the U.S. Treasury in
exchange for bailout money into common stock that can be sold on the open
market. The Treasury owns $49 billion in AIG preferred stock. The exchange will
leave the Treasury with 1.66 billion shares of AIG common stock.
For the Treasury to recoup its bailout money, it must be able to sell the AIG
stock at an average price of approximately $29 a share.
AIG is currently valued at $25 billion, so the potential hazard to the
Treasury’s plan is clear: how does one get $49 billion out of a company that’s
currently worth $25 billion? The follow on question is: why would investors buy
AIG shares while the government’s AIG stock sale could last 18-24 months?
The U.S. government may encounter similar difficulty as it tries to recoup its
loans to General Motors, through its initial public offering planned for
sometime in November. It’s reported that, in order to recover its $45 billion
from GM, the Treasury will need to sell its stock for $133.78 a share. That
sale price may be unrealistic.
There’s still an even bigger issue for the American taxpayer that’s not being
addressed. The U.S. government has had to sell record amounts of Treasury bonds
to cover its obligations to companies like AIG and GM. That’s pushed the
federal deficit to all time highs, crushed the U.S. dollar, and left the
government unable to address current problems like high unemployment or budget
shortfalls in certain states.
In other words, who’s paying the taxpayer back for the risk and continued
fallout from the bailouts?
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