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Home Publications Blogs Beat the Press If AIG Sells Off Assets and Hands the Cash to the Government, How Would Its Share Price Not be Affected?

If AIG Sells Off Assets and Hands the Cash to the Government, How Would Its Share Price Not be Affected?

Monday, 04 October 2010 21:18

That's what readers of Andrew Ross Sorkin's column on AIG are all asking, but arithmetic and Mr. Sorkin are rarely found in the same room. Of course the real story of AIG and the other bailouts is that the government used its credit to keep the company, and more importantly its creditors and top executives in business.

Sorkin apparently assumes his readers do not understand that below market loans and guarantees have enormous value. Of course if the government had made the same commitments to the owner of a corner hot-dog stand as it did to AIG, this person would be as rich as Bill Gates right now. Mr. Sorkin could then write a column about how the loans and guarantees didn't cost the government anything (since the hot-dog stand owner had repaid them), but NYT readers know better.

Comments (7)Add Comment
Been there, done that
written by James, October 04, 2010 10:12
It's TBTF - AIG and those beneficiaries created jobs to smart executives, mgrs, analysts, traders so it's vital to save the TBTF firms so those Ivy League folks could keep their Hampton vacation home.

While your corner hot dog stand could go wear a yellow smiley face and greet people. The stand at best has only couple of high school kids.

Got that?
written by izzatzo, October 05, 2010 7:06
Our franchised mobile hot dog stands, Freedom Dogs Inc, are run by Teabaggers, financed by loan sharks from Compound This Inc, backed up by counterparties from Moral Hazard Inc. We use Pimps Inc to protect our public property corners from competitors, which also provides attorneys who represent us for selling contaminated food without a license.
It's the Smiley Face
written by Ron Alley, October 05, 2010 8:07
The article is an attempt to put a smiley face on the Obama administration's love for corporate interests and indifference to rest of us.
An easy finance question trips Dean up.
written by AndrewDover, October 05, 2010 10:21
Q) "If AIG sells off assets and hands the cash to the Government, how would its share price not be affected?"

A) Easy, the market already has a pretty good estimate of what AIG's assets are worth. The market already knows that AIG needs to repay the federal government. The price of a stock is the market's best estimate of AIG's assets minus its liabilities divided by the shares outstanding. As long as AIG sells assets for a price close to what the market expects, the share prices won't change much.

I would hope that NY Times readers who have taken a Finance 101 course could answer the question.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.