Do you have any reason to doubt the announcements? Do you think these companies are lying to shareholders (which is illegal)? Every previous announcement of this sort by the other companies has turned out exactly true. First it was too expensive. Then it was that auto companies were unsavable. Then it was that Citi/BAC/AIG would never be able to fix themselves. Then it was just Citi/AIG. Then just AIG. You'd think people would get tired of being wrong.
Uh....in AIG's case, it's a little more complicated than just making an announcement....they did that the day after the bailout. Just because the plan is too complicated for you to understand doesn't mean it's not legit. AIG will be 100% independent and have the taxpayers paid back in full by election day. Book it.
Anyone else concerned about how these companies have been able to turn around so fast in what is still a down economy?
It's not really paying it back. At least not all of it. The bulk is that the gov't is going to convert its preferred stock in AIG into common stock, then gradually sell it all on the market (unless AIG agrees to do a buyback of some of it itself, which wasn't contemplated from what i've read). There's also a credit line of outstanding UST loans which AIG is paying back via asset sales. (it was "only" 20bb or so so really not that big....really).
I don't think it's a huge issue of turning it around. The banks never really lacked cash - they just had to mark down a bunch of stuff to extreme levels because of the extreme situation. That's what people missed about this whole thing - if not for paper regulatory requirements, the banks were never really in trouble in terms of being unable to pay their expenses every day. The loans they were marking down was money that wasn't due for years, so it wasn't really money they had anyway. They just needed the cash on their books to protect from future issues. Now that things have calmed down, they were able to simply raise the cash from the market instead of the government. This was one reason why it was so clear TARP would work and not be a money loser (though I didn't expect it to be paid back this quickly) - the banks were fundamentally fine. They were just having to account for future losses now without the opportunity to generate revenues to cover those losses over time. It was like being told your entire mortgage was suddenly due today; most people wouldn't be able to pay it and would declare bankruptcy, despite the fact that they could easily handle it if they had the 10-30 years to generate income to pay for your mortgage. AIG's problems were different - but to answer pgabriel's question, it's a mix of things. Part of it is spinning off various units; part of it is stock valuation, etc. Here are some details, though not many: http://www.cnbc.com/id/39434744 A large part is set up much the same way Citi and GM were - the government will own a huge chunk of the healthy version of the company and sell the shares over the course of time.
I disagree - the banks that failed did so precisely because they lacked cash and their overnight lenders in repo transactions dried up. The problem is that they have to fund themselves every single night in what amounts to a giant confidence game (a problem that really hasn't been fixed as far as I can tell). The banks mortgage is due every day, that's not a new scenario for them it's simply the way they do business. Second, as far as the loans being marked down - yeah it wasn't money they had, but it was money they borrowed against so it's not quite that simple as the Picasso you have in the corner temporarily declining in value.....also, it's not like it was a temporary markdown in these asset values, most of them, as far as I know, remain marked down, i.e. worthless. edit: here's what i mean, the ABX index for the worst of the worst is still in terible shape: edit 2: Thinking about it, this actually overstates the valuation of subprime backed ABS. Most of the things that were rated AAA, A, BBB in 2007-08 have since been downgraded to C or D (junk/worthless) - effectively zero, the real losers have been culled from the herd - and the numbers are still bad.
Before they repay the government, they will repay the 20 billion to the Federal Reserve of NY with proceeds from the pending IPO of it's Asian life insurance business and the pending sale of ALICO to Metlife. And like others have said, they will exchange the TARP preferred shares for about 92% of AIG common stock. The government will then sell the stock on the open market. Well, in AIG's case, they've just done a better job of getting their house in order, so to speak. They've divested many non-core assets and thereby unleveraged (is that a word?) their balance sheet. They've improved their liquidity position so they can meet their obligations without need for another bailout for the next inevitable crisis. They've strengthened their core insurance businesses (which have always been profitable and never did anything wrong, btw....), and most importantly, they've unwound their horrific Financial Products division exposures by 70% to the point that it's no longer a risk to the company or the entire free world like it was 2 years ago....
How do you fix the repo market? With the mother of all FDICs? I think this topic is deceptive in that it distorts perception on the financial bailout front. All the back channel stuff the Fed and Treasury did to prop up the system pales in comparison to ~700 billion dollar tarp. It doesn't count our Bear Stearns junk assets, AIG's junk assets, nor whatever nasty plumbing Fanny and Freddy are hiding under the accounting books. We also opened up trillions in loans and commitments at bargain rates to prop up bank liquidity for the purpose of resuming the repo market without fear of panics and fire sales. All of these factors suggest that many of them still can't stand on their own two feet. And the ones who can will happily use the government goodies to their advantage.
In addition to what other said I also read that they are selling some pieces of the company (I think MetLife was the example) and using the proceeds to pay back the government.
Exchanging prefs for common is hardly paying back. Not until those commons are sold. In fact....what benefit is there to the gov't to owning commons over prefs -- especially if the goal is being paid out? If the company is truly worth the conversion price, why not just do public offerings to raise the money and payout the prefs? Even in tiers. But it is amazing how suddenly prudent the exec's became when their pay was at stake.
lol the cost of TARP was the economic losses (not accounting losses). Its the cost of the unseen missed opportunities, rather than what is seen. I don't think anybody doubted if you gave billions of dollars to banks at a time when the stock market was tanking (and quite frankly are still giving them as TARP has never really stopped) they couldn't buy up everything and make a buttload of money. The problem has always been, and continues to be, is that the most productive use of that money. The answer is an unequivocal no. The FED could have kept the commercial paper market running all by itself anyway. The economy has to adjust itself to the changed circumstances, but by continually propping up the old regime, the govt. isn't allowing the necessary resources necessary to do that go into the right hands.
What they are doing is essentially a more efficient version of what you're suggesting, and allows the government to quietly and slowly sell the shares so as to not affect the market price of the securities. It's the same structure they used with Citigroup.
