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Hugh Hendry: AIG is "no longer with us"

BusinessWeek points us to Hugh Hendry's recent comments on AIG and the process by which supposedly "too big to fail" financial companies have become wards of the state:

"To the average U.S. taxpayer, the math may not sound right: After pumping in about $150 billion of federal money (with another $30 billion to come), American International Group posts a quarterly loss of almost $62 billion—the largest in history. And it will have access to $30 billion in new cash from Washington.

American International Group is being broken up in exchange for getting yet get another lifeline from the government. The former insurance giant posted a staggering $61.7 billion loss for the fourth quarter (about $22.95 per diluted share). Now, AIG is putting what are considered to be its most valuable insurance assets—American International Assurance (AIA) and its Asian operations—under direct government control. Once the businesses are sold, taxpayers will reap the benefits.

I was struck by what Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC this morning: “AIG is really no longer with us … I think the reality is (a lot of financial companies) left the business last year.”"

As BusinessWeek writer Diane Brady noted in the final excerpted paragraph (above), Hugh Hendry made some interesting comments about AIG and the financial sector in his CNBC guest host appearance today.

In his interview with CNBC, Hendry points out that AIG is on artificial life support from the government (read: taxpayer funds) and that many other financial companies are now in the same situation.

Now that AIG is asking for (and receiving) another lifeline of funds and more lenient government bailout terms, Hugh reminds us that "AIG is no longer with us".

""We live in a very strange, twilight period where we pretend that a lot of these financial companies are still with us. I think the reality is they left the business last year," Hendry added."

Hendry also notes that the stock market is viewing many of these trouble financial firms as essentially bankrupt, and that bank nationalization would provide for an "orderly liquidation" of debts from these insolvent institutions.

Interestingly enough, Hugh's thoughts on this issue seem to mirror those offered today by CNBC host Rick Santelli, who also favors a sort of controlled bankruptcy-style process for these firms.

At the same time, Hendry noted that the endless bailout actions and the frenzied search for solutions are a waste of time and effort. Check out his thoughts on the long transition cycles that take asset prices from overvaluation to undervaluation for more on this point.

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