Friday, January 23, 2009

Speaking of zombies...

Okay, here's a thought. AIG, at this point, is as zombielike as any financial company you can name. Even after two bailout attempts, it remains as good as dead. It's also sucked up enough government money to be mostly nationalized already. So, here's the idea:

Why not nationalize it completely, wiping out the shareholders completely? Shares have so little value left, most shareholders hardly would notice. Break the company in half, with General Insurance, Life Insurance and Retirement Services, and Asset Management in one part, and Financial Services in the other. Sell the first half, which continues to make money, and recover many of the billions of taxpayer dollars now sunk in the AIG swamp.

The Financial services sector then should be taken into bankruptcy, wiping out the debts owed on credit default swaps. Banks that continue to count CDSs from AIG as assets then would be obliged to write them down, and everybody would have a much better idea of just how well capitalized those banks may or may not be.

It's a safe bet that some more zombies would emerge from the shadows. Those, too, should be nationalized by some RTC-like agency, and their remaining assets sold when things start getting back to normal.

I understand that not all financial stocks are held by hedge funds and wealthy fat cats. I have no doubt that both my pension fund and my 403(b) would suffer further losses, but neither one stands much chance of recovery until a lot more light is shone into the obscurity of derivatives markets. Since AIG turned out to be such a central player, AIG seems like a great place to start.

No comments: