My original calculations on the AIG bailout are being blown out of the water. I just wonder however what this does to AIG bonds. The minus side is obvious - AIG is much worse than it appeared in advance.
The plus side for the bonds is that the government is turning much of its injection into preference shares - and that means the Government injection is subordinate to the bonds. That logically increases the value of AIG bonds.
Net-net it is probably a wash - but I have not thought through the details enough.
Follow up: The bonds are well dealt with in this post.