Has Treasury Secretary Hank Paulson just done the deal of the century? He bought 80% of AIG for $85 billion. At its peak a few years ago, when Hank Greenberg was in charge, AIG was worth almost $300 billion. 80% of that would be a cool $240 billion, or the amount of the entire government deficit in a good year. (For all his issues and problems, Mr. Greenberg would no doubt be anxious to offer advice to Paulson on maximizing the value in the company whose current board and management stiffed him after he ran it for forty years.)

Moreover, buying assets in panics and at fire sale prices is one of American finance’s most cherished traditions. Leon Black’s Apollo Group made its first billions from buying the Derexel junk bonds housed at defunct institutions like Executive Life. That worked out rather splendidly for them. Of course AIG has many troubled assets so it is too early to know exactly this is all going to work out.

However, it is worth noting that Democrats in Congress are calling for a new version of the Resolution Trust Corporation to be set up to buy the bad debts of various institutions. The way that worked out last time is that taxpayers footed the bill (“Read My Hips“) and a number of those in the private sector who repurchased the assets of the defunct institutions often made out like bandits. So the trick for Mr. Paulson may be to get the government not to sell AIG too soon, and give up the profits that the government has so often too willingly parted with in the past.

This entry was posted on Wednesday, September 17th, 2008 at 3:57 pm and is filed under Democrats, General, Republicans, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.