It seems like a devilishly clever plan. The US government already owns 80% of AIG (AIG). Why not break the company into pieces and let taxpayers own larger chunks of the parts? The plan assumes that AIG is worth more in pieces than as an intact entity, and at this point, there is no evidence that the assumption is true.
According to Reuters, “under consideration is a plan that would allow the U.S. to take stakes in AIG assets like Alico and AIA, and either spin them off or sell them later if the current auctions fail.”
If the auctions fail, then the assets are more attractive? Certainly not, which means that the government’s wish to own them should only decrease.
There is some theory, probably a misconception, that it is easier for buyers to takeover parts of AIG if they are already separated from the parent. Since AIG has been shopping most of its divisions around the world for months, it is difficult to see the sense in that argument.
The government is stuck with AIG. If it fails, a number of financial firms around the world that do business with the big insurance company could be faced with billions of dollars in losses. The US is not willing to have that happen, so it keeps AIG on life support. Creating a dozen little AIGs will not resolve that problem.
Douglas A. McIntyre
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