Posted on 09/16/2008 4:49:39 PM PDT by 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.
(Excerpt) Read more at iht.com ...
True massive upheavals like major depressions and world wars bring nothing good. They breed fascism.
“You don’t get it. It wouldn’t with AIG, it would continue.”
I totally get it and understand economic very well. Allowing bad companies to fail is a good thing and not something that can lead to a depression. A stock market crash is one result of a bad economy, not what causes it.
AIG is so inter-connected with other companies, it would bring down other firms.
You must be British because I see you certainly have mastered the art of understatement!!!
The purpose of the $85bn loan is to facilitate an orderly sale of assets and the dissolution of the company as we know it.
This is NOT a solvency crisis as much as a liquidity crisis. AIG can cover the vast bulk of their obligations IF they have a chance to sell them in the (relatively) normal course of business in arms-length transactions, on a basis beyond firesale.
“Bailout” is not even the proper term for this. The Fed stepped up to easy AIG into oblivion at a workmanlike pace, rather than in a sudden mushroom cloud.
“AIG is so inter-connected with other companies, it would bring down other firms.”
I know that, but I don’t care. Why are we propping up companies that otherwise wouldn’t exist? Maybe we should go out and artificially create a few more companies and prop them up, too?
What we seem to be saying here is that the dollar has far less value than the market says it should. I mean, when we say, “People will lose lots of money”, I have to ask, “What money?” If the money is already there then there is no propping up to do. Obviously, the markets have been playing with funny money that does not exist and the Fed is all part of it. Welcome to fiat currency where money has no value except for the amount of hype behind it.
Uh, no.
True, nothing is too big to fail. A more accurate description would be ‘too big to fail and be certain of still have a functioning credit/debt-based economy.’
What I believe the Fed is trying to do is unravel this thing in as graceful and orderly manner as possible. AIG will probably cease to exist in the not too distant future.
These people weren’t buying and selling Buicks, they were dealing in hideously complex financial instruments on a global scale.
What I believe the Fed is trying to do is unravel this thing in as graceful and orderly manner as possible. AIG will probably cease to exist in the not too distant future.
These people weren’t buying and selling Buicks, they were dealing in hideously complex financial instruments on a global scale.
Where do you get this stuff?
That dry wit, tis funny......
I’m sorry, I am now completely confused.
Every report I heard on TV said that AIG had to get $40 billion by today or declare bankruptcy. The impending bankruptcy was triggered by losses AIG was on the hook to pay and exacerbated by a credit downgrade.
What again was the $85 billion for?
Why was AIG on the cusp of bankruptcy if the $85 billion was just given to dismantle the company. AIG avoided having to declare bankruptcy, so somebody paid off the margin call on the outstanding debt. And now you are saying that isn’t the $85 billion loaned?
What am I missing here? What are you missing?
What am I missing here? What are you missing?
Claims from Ike?
This is quite the same as you providing your bank a loan document, in return for which they give you some money, and expect you to pay off the loan with interest, as promised in your signed loan document.
There is a nice flow chart and explanation of this process at The Federal Reserve Open Market Operation. There is also a nice explanation of this in Ellen Browns delightful book Web of Debt: The Shocking Truth About Our Money System
“they were dealing in hideously complex financial instruments on a global scale.”
I design hideously complex avionics systems. If my company fails, I can I have taxpayer money, too?
They were dealing in extremely risky and unsupported contracts, most of which were probably illegal in the first place. Bad business practices should never be rewarded but the entire financial system is based on fiat currency that can and is created out of thin air.
They were not dealing in proper and sound financial markets. They were shuffling paperwork and money in a grand pyramid and Ponzi scheme. There was no “business” to it.
We need to confiscate all the monies these thieves took, return it to the shareholders, then let the frauds fail. It will do the honest markets a lot of good.
You’ve struck on the reason it became obvious AIG was too big to fail. It started at $40bn, then $50bn, and finally in midafternoon when the CNBC team was kicking around $75bn and up, it was clear they had counted in not just the balance sheet of AIG as of Monday, but the effect on short-term viability cause by the S&P downgrade and the realization by NY and US governments of how far out the roots of this old tree ran: insurance claims in the gulf; annuity payments to seniors; shipping insureds trying to deliver goods (land, sea and air); not to mention the normal lending/mortgage activities.
I would not use those terms.
I’ve had a long, bad day and I needed a laugh.
Thank you for your links. Those pages, and my stupid miniature poodle, have brought all the laughter I need for the evening.
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