My Off The Wall Plan For AIG

OK guys I have a plan.

Don’t laugh.

The problem with this whole AIG mess is that the management there is hanging onto profitable parts of the company so that they can resurrect AIG after the taxpayers have helpfully paid off all the rotten stuff. Or at least that seems to be what’s going on because not much of the company has been sold off so far despite the rumors that there are plenty of interested buyers floating around. Meanwhile the political angst builds over those obnoxious morons in AIG’s ‘Financial Products Division’ – the epicenter of the crash – getting retention bonuses.

Some of our esteemed leaders are now floating the idea that we allow the bonuses to be paid, but that then we legislate a special excise tax against companies who both receive TARP or other bailout money and pay bonuses. This way we recoup the bonus money cash. The problem is that this might stop AIG paying well earned bonuses to employees of its good businesses.

So: we have AIG being slow to dismantle itself in the hope of surviving. And we have the need to free the good businesses so the employees there can go ahead and get paid their due. Both problems point to the need to accelerate the selling off of the good bits of the company.

So here’s my plan:

The government should stop immediately any further injections of capital to offset the losses of the rotten business. Instead it should give out loans to companies willing to purchase divisions of AIG. This will grease the skids and accelerate sale. The cash still ends up in AIG’s hands, but only once they’ve started an honest effort to dismantle themselves. The companies who receive the acquisition loans will have to repay the government over time – I would peg the repayment periods and amounts to the cash flows of the good AIG businesses being acquired. At the end of repayment the acquiring companies are left with healthy profitable divisions, and the taxpayers have been repaid the capital that was funneled into AIG. The whole system benefits from the reallocation of capital away from the lunatics of AIG.

Meanwhile: this would leave AIG as a rump of toxic waste [aka the Financial Products Division] we would still have to clean up. But at least the punishment would fit the crime. As the derivatives chaos is wound down AIG would slowly shrink away to nothing and would eventually pass into history where it belongs. In effect this plan is the opposite of a ‘bad bank’ plan since it leaves the rotten stuff on the balance sheet rather than removing it.

The advantages of my plan?

It forces the elimination of AIG. It enables the redistribution of AIG’s good businesses into more capable management hands. It accelerates the disposition of AIG’s assets. It puts a ring around the rotten stuff. It enables but limits capital inflows into AIG only for constructive purposes. It allows the taxpayers to be repaid the acquisition capital component, and thus reduces the burden on future Federal deficits. And it allows the employees of the good businesses to return to normalcy more quickly. Oh and it lets us hammer the lunatics in the asylum for the repayment of those awful retention bonuses.

The downside to my plan?

It is my plan not Tim Geithner’s. So it won’t see the light of day.

Oh well.

At least I tried.