AIG and GM Payback Plans Doomed to Fail?
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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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Posted 09-30-2010 3:35 PM by Ian Wyatt
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