Given the interview with Hank Greenberg by Maria Bartiromo of CNBC/Business Week that I saw excerpts of yesterday (read the transcript of the interview here), I would assume that the senior management of AIG and the board would have to be reconstituted.  Those officers and directors who authorized and  engaged in violating sound risk management and made imprudent investments in senior tranches of CDOs and credit default swaps that were tied to sub prime mortgages should be purged from the company, at whatever cost.  The compelling objective is to stabilize the liquidity of the company by cleansing AIG's balance sheet of these toxic  structured securities and Credit Default Swap counterparty agreements for these derivatives to shed the collateral requirements. Hank Greenberg who had controlling interest stock in AIG via C.V. Starr, Inc. and perhaps former director Eli Broad who sold his annunity company several years ago to the company may have some significant dilution of their AIG equity values. Broad and other AIG directors had demanded management changes at the company.  Greenberg had published a letter suggesting his participation in the development of a rescue plan for AIG, given his past stewardship of the company and control block stakes.  AIG should be returned to its core businesses, property and casualty, life and annuity, reinsurance and the aircraft leasing business and possibly auto finance.  The $20 billion in net proceeds on hand that the NYS Insurance Department approved for possible upstream holding company emergency financing should be used to make a first payment back to the Fed under the terms of this 'bridge loan' agreement with the Federal Reserve. This should be followed with an orderly auction of non-strategic assets to pare down the $85 billion credit facility carrying an interest level of 11.5% as rapidly as practical.

Given one of my careers as a former state insurance regulator (special deputy commissioner New Jersey) active in NAIC financial regulatory initiatives, AIG is subject to the regulatory supervision of the NYS Insurance Department.  There will likely be regulatory disclosure filings in the form of a change in control and amended holding company registration statements that would contain the proforma financial statements for this deal with the Federal Reserve and amended quarterly regulatory  (statutory accounting) statements.  Those public disclosure filings should make for very interesting reading by the financial press.

I think the comments of Professor Roubini of NYU (“Dr. Doom”), whose commentary I follow via Martin Wolf’s column in the Financial Times, and the Hong Kong Based CFO for Asian securities for Fortis Investments, Ronald Chan in this AP report are spot on.

We're essentially continuing a system where profits are privatized and ... losses socialized,  said Nouriel Roubini, a professor at New York University's Stern School of Business, adding that automakers, airlines and other struggling businesses will be lining up for a government bailout.

What the U.S. government is doing is basically delaying the recovery of the economy really by keeping AIG alive and by going back to the printing press to issue more U.S. dollars, which long term should be negative to the U.S. dollar, said Ronald Chan, chief investment officer for Asian equities with Fortis Investments in Hong Kong, where he oversees about $1.5 billion.
 

Short-term, I think the systemic risk issue has been reduced on the fact that the Fed is seen to be coming out to save the market, but the recovery is going to be prolonged, he said.