Beware of Phony AIG Profits

When Warren Buffett wanted to better understand derivatives, he invited Janet Tavakoli to Omaha. He knows Janet gets the game. She is currently warning about AIG and notes that any future profits at AIG will be phony. She says the government may use taxpayer money (Of course, the Fed could also just print the money and tax through inflation) to prop up AIG assets and make AIG look profitable.

In an email to me, Janet writes:

....loan terms have already been modified in AIG’s favor and support increased by around $100 billion [for a total of $180 billion]. We were told this was a short-term intervention, but it has turned into a long-term “investment,” that is life support of a company whose shares are in reality worth zero (despite the 20/1 reverse split). AIG’s value is to its trading partners engaging in financial necrophilia.

Here's a video of Janet discussing AIG with First Business.