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AIG to sell $9 billion in shares this month

Marketplace Staff May 11, 2011
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AIG to sell $9 billion in shares this month

Marketplace Staff May 11, 2011
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JEREMY HOBSON: Now let’s get to AIG. The company announced this morning that it and the Treasury Department will go ahead with the sale of about $9 billion in shares this month. The government is trying to at least break even on the company it bailed out during the financial crisis.

And it looks like breaking even is about the best it’ll do — after a disappointing quarter for AIG which lost money in its property insurance business because of the earthquake in Japan.

Let’s bring in Richard DeKaser. He’s an economist with the Parthenon Group. And he’s with us live from Boston as he is each Wednesday. Good morning.

RICHARD DEKASER: Good morning.

HOBSON: So do you think the government is making the right move here in going ahead with this sale of AIG stock right after the stock took such a beating?

DEKASER: You know, I do. Actually it’s up substantiality today. But here’s the deal. The government is holding about $48 billion in AIG which translate into an effective price of $28 and change. As I said today it’s trading over $31, so it will make a profit. And we need to remember that the reason the government did this in the first place was not to speculate on the stock market but to prevent a financial armageddon from playing out. So I think it’s time to start paring back and this is less of a profit than it would’ve been, but we’re still coming out ahead.

HOBSON: Do you think, Richard, that there’s ever going to be a point that you and I will be able to talk about Wall Street firms that are totally free of government assistance?

DEKASER: Well, depends what you mean by assistance. If you mean holding ownership positions — yes, I’d say we’re a few years away from that. But the government’s always going to be providing assistance in other ways if only indirectly. I mean, deposit insurance at banks is a form of government insurance which is provided in a monopoly format without a profit. So that sort of thing is going to be going on for a long time after the remnant of the financial crisis have long since passed.

HOBSON: Richard DeKaser, economist with the Parthenon Group, thanks as always.

DEKASER: My pleasure.

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