Fed to give AIG $85 billion loan and take 80% stake[Done Deal]

IHT ^ | 17 Sep 2008 | Michael J. De La Merced and Eric Dash Published:

[BGHater]

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.

The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

Without the help, AIG was expected to be forced to file for bankruptcy protection.

The need for the loans became necessary after the major credit ratings agencies downgraded AIG late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.

Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and AIG's request for help from the Fed of just a few days ago was rebuffed.

[AuntB]

“AIG is too big to fail.”

So little pipsqueeks like you and I have to bail them out...because they’re too BIG?

If the BIG guys can’t make it, tough! I had to, on my own.
This mess is costing me hundreds per month. Enough of it. There is NO excuse for this.

[Conservative Actuary]

If the government is taking an 80% stake then AIG has been nationalized. We now live in a socialist country.

[durasell]

Giant company with more than a hundred thousand people scattered across the global and a ton of toxic assets with close to zero worth.

If Goldman Sachs — a company filled with smart cookies — walked away from it,then you know something smells very, very bad.

Long Term: the company ceases to exist.
Short Term: it limps along for a couple years.

[pepperhead]

Opps I am getting all the buy out and bail outs mixed up!

[BGHater]

Micro: Might stabilize short term markets with US gov’t backing of AIG investments, ie mortgages, European retirements. etc

Macro: Inflationary symptoms and HUGE Obligations for US taxpayers. We might never be paid back. Foreign markets might lose faith in the Greenback.

[Tublecane]

“If AIG failed, it would set off a domino effect across the insurance industry and the cost of lost equity to TAXPAYERS would be infinitely larger than $85 billion.”

Good! All of our economic woes stem from bad investment due to credit expansion. We need an economic contraction to sort things out. So long as the fed keeps bailing people out, we are only prolonging the crisis.

[AuntB]

“I guess giving all those home loans to illegals, and repackaging them for other ‘investors’ to buy, wasn’t such a good idea afterall.”

It was a great idea! AIG, Lehman, none of their CEO’s are going to be hurt. All our politicians who have $$$ invested will now be saved. The only ones hurt are you and I and we are expendable. Have you noticed?

[Bogeygolfer]

Im guessing its a great deal for the tax payers (no sarcasm) if this is as written. A loan is not a purchase so in essence we get the company for the cost of the loan. This is a company with over 1B in revenue and will turn around IMHO. I’m not condoning this so much as commenting that this may not be the usual ‘costing the taxpayers’ mantra we are used to.

[AuntB]

Where does it end, wagglebee? How many of them can we bail out?

[Bogeygolfer]

The current shareholders just lost 80% of their stake. Not exactly a happy scenario for them.

[Tublecane]

“this may not be the usual ‘costing the taxpayers’ mantra we are used to”

Of course this’ll cost the taxpayers. Where does the Fed get its money? Inflation, i.e. counterfeiting.

[wagglebee]

Trust me, I’m NOT in favor of bailouts. However, the cost to taxpayers of AIG failing would be far more than $85 million. Nearly every major fund is heavily invested in AIG.

[BGHater]

Europe now. Dunno if this has given them any confidence at this point. Really in uncharted area.

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^AEX	AEX General	375.28 10:56AM ET	9.76 (2.53%)	Chart, More
^OSEAX	OSE All Share	392.85 10:56AM ET	20.22 (4.89%)	Components, Chart, More
^MIBTEL	MIBTel	20,660.00 10:58AM ET	329.00 (1.57%)	Components, Chart, More
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^SMSI	Madrid General	1,171.86 10:55AM ET	1.33 (0.11%)	Components, Chart, More
^OMXSPI	Stockholm General	258.50 10:56AM ET	4.33 (1.65%)	Chart, More
^SSMI	Swiss Market	6,802.41 10:58AM ET	136.70 (1.97%)	Chart, More
^FTSE	FTSE 100	5,083.40 10:57AM ET	120.80 (2.32%)	Components, Chart, More

[AuntB]

“The current shareholders just lost 80% of their stake. Not exactly a happy scenario for them.”

Yes, but with a $85,000,000 infusion, the stock will go back up, right? So haven’t we bailed them out as well? I always suffered the loss of my bad investments, so should they.

[Bogeygolfer]

“All our politicians who have $$$ invested will now be saved.”

If by saved you mean their $70 share price (12 mos high) is now worth 20% of $3.75 (current price)...that’s $70 to $0.75 in short order...then they are saved. Saved from what I don’t know. They were lost and they still are. A $100K investment is now worth $1071.

[AndyJackson]

I am getting all the buy out and bail outs mixed up!

It is all rather Orwellian. Yesterday bailouts were double ungood. Today double plus good. Tomorrow?

[scooby321]

Its a Good buy.

[gotribe]

It’ll be interesting to see exactly what it is they bought.

A bunch of hurricane Ike claims.

[AuntB]

“Trust me, I’m NOT in favor of bailouts. However, the cost to taxpayers of AIG failing would be far more than $85 million. Nearly every major fund is heavily invested in AIG.”

Then I would say the ‘major funds’ have made a bad investment as well.

Where does it end?