The government announced after hours that it would provide an $85 billion bridge loan to AIG. In return, the government will get an 80% equity stake in the company. AIG was determined to be "to big to fail" because AIG has a piece in so many other financial institutions. The government was afraid of what would happen if AIG were to fail. Me? I'm kind of interested.
Now to be fair, I'm not sure how risky this is for the government. AIG has a lot of assets in things that probably still have value. The loan is for 2 years at a pretty high interest rate. What the loan will do is allow AIG to have an orderly sell off of its assets rather than having a fire sale as it tries to meet its captial obligations. But seriously, where is the line? I like that the government let Lehman fail (although I don't know why they let it fail and not Bear Sterns) but still, is it so bad that we let a few big companies fail?
I think the market is about to turn up for the short term. In an up market, we always overshoot. Same goes in a down market. Right now, there is a lot of forced selling that is going on. People are trying to raise capital by selling the assets they have. The market will go up, and violently for some of the stocks that have depreciated the most. The strategy there, sell any rally. The market is still in a downtrend long term. Still wouldn't put new money in although I'm starting to get tempted. I actually like, long term, names like Goldman Sachs who will be positioned better long term as most of their competitors have gone under. if it gets in the $110 range, I'm going to have to think very hard about it. I also like some of the energy names. Lost in all this turmoil is the fact that oil has dropped like a rock. This can actually be bullish for companies that use it as an input.
Lehman went bakrupt. Merril was bought. And AIG was bailed out. Damn, is it really only Tuesday?