AIG gets more bailout money

[wphelan]

http://www.bloomberg.com/apps/news?pid=20601103&sid=a__sWuaTWZXw&refer=us

As I was reading about the money AIG will be getting, this quote really stuck out:

``This gives AIG much more breathing room,'' said Robert Haines, an analyst at CreditSights Inc. ``Now they have the time and flexibility to sell assets for closer to their intrinsic value rather than fire-sale prices.'' The news is a ``big positive'' for bondholders, he said.

Intrinsic value? Do assets really have a selling price that is intrinsic? I don't think there's any intrinsic at all about prices. If people are only willing pay "fire-sale" prices for something, it's probably because that's what it's worth now.

I don't know why, but this quote really bugged me. I know it's not from somebody at AIG, but it seems to encapsulate the idea that companies like AIG are somehow entitled to somebody saving them from their mistakes because of some "intrinsic" value he thinks they should have.

[Americano]

Government bail-outs seem to be 'the gift that never stops giving'.

As to 'intrinsic' value, that has zero to do with market value and IMO we can chalk it up to a credit analyst trying to stimulate positive interest in AIG. AIGs liabilities far exceed assets and the government (public) doesn't stand a chance in hell pf ever making a gain on that 'investment'. If the new investment structure was preferred stock we might get some of it back in a liquidation.

[Michael]

Intrinsic value? Do assets really have a selling price that is intrinsic? I don't think there's any intrinsic at all about prices. If people are only willing pay "fire-sale" prices for something, it's probably because that's what it's worth now.
I agree completely. Markets determine prices. If the market won't buy your asset, your asset is worthless.

Btw, it is fundamentally Marxist ideology to assert that any given asset has an "intrinsic" value independent of the market valuation. According to market theory, only market value is real. Everything else is just fantasy.

I only wish the market was as effective in spotting 'hype' as well as they certainly are spotting 'toxic'.

And another thing - the terms of the 'bailout' of AIG don't match the reasons given for it. The reasons for the bailout is the large (AIG) counterparty risk to existing credit-default swaps if they fail. Yet the entire bailout package is all about giving gifts to management and shareholders.

If the problem was risk to the derivatives market, address the problem in the derivatives market.

Same game is being played with the real estate game. The problem is the foreclosure rate on sub-prime mortgages. Ergo, fix the problem there. Pumping capital into banks isn't going to solve the foreclosure problem.

Seems like every solution offered by the US Treasury involves rewarding bad management and foolish shareholders (socializing losses and privatizing profits) and ignoring the actual cause of the problem.

If this isn't a sign of stagnation in US capitalism (and a recipe to repeat the game), I don't know what is.