Wednesday, September 17, 2008

AIG Factors Itself

AIG (AIG) finally raised enough funds to facilitate an orderly liquidation. Too bad for Hank Greenberg but some will call it financial karma. No one wanted this asset. It was just too big and too gnarly. It also had a finger in so many pies risk measurement officers were reduced to tears or worse.

The loan acts as a traffic cop while investors pick through the assets and take what they want or need. The valuation will reflect the liquidation nature so top dollars or even reasonable dollars will not come out. Shareholders will effectively take the hit. But management kept saying all is good and now we have to pawn the family jewels. Who will hang for that one.

Similar to what the rag trade used to do and may still do AIG has factored its assets. It is the most expensive form of financing and only to be used when you have backed yourself into a corner. The rag trade usually knows it will factor and will price their assets accordingly. AIG never saw it coming.