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 ...
“Yeah Hoover, lets live the next 20 years in a Depression until a World War pulls us out. That’ll show um.”
What an ignorant statement. We as a nation wait until these guys fail while doing what we know to risky business but now you want to get all huffy and demand we bail them out???
Let them fail. It will hardly cause a depression.
Next crisis around the corner will be Bank of America.
I think they bought Merrill Lynch to make the kitty larger. They want to get so big they will get a bailout.
Look for that one.
The Fed is a private corporation, not a government entity.
So it makes a loan guarantee, and the Treasury prints more money to back it up. And if AIG fails, the Fed doesn’t pay the price—the taxpayer does.
Same thing with Fannie Mae and Freddie Mac. They lend the money, which is floated into the system by the Fed. When the loans go south, the Fed doesn’t pay the price, the taxpayers do.
The Fed should be audited. Since 1913, it has done what it has done without any oversight by Congress.
Yet, everything it does affects our lives.
It doesn’t appear that we live in a free market economy any more...
The Fed has nearly $480 billion in Treasury securities.
Do they realize that the Fed conjures it out of thin air?
They could. They don't have to.
I wonder when the CEOs of the Fannie/Freddie acts are going to get the Enron/Worldcom treatment? Oh wait, they are Democrat political operatives, never mind.
It’ll be interesting to see exactly what it is they bought.
A bunch of hurricane Ike claims.
Interesting. If they go under, then those claims don’t get paid.
Exactly. That’s the question that should raise hairs on the back of everybody’s neck: Who is the lender of last resort for the Fed?
So what is the solution going forward? No one company is allowed to be worth a certain dollar amount or control maximum percentage of the market in their industry?
Makes the billion dollar Chrysler loan look like chump change.
Well, I think of failed like Lehman on Monday: nighttime bk filing. Suddenly gone.
AIG will never be the same, but they didn’t fail “Wonderful Life” style.
AIG is in the same position as ML as far as I can tell, or Bear Stearns. Gone, but without the tsunami that an outright failure would have begotten.
Bear Stearns, Lehman Bros. and AIG all vaporized by the derivatives time bomb and leading us to the brink of depression. So much for the idiotic claim that derivatives are nothing but a zero sum game.
just about anyone with money in a retirement account, IRA or 401K owns a chuck of AIG anyway.
And that is the risk they take by putting it there.
Yes, but when you don’t make it, the world isn’t pushed into a global depression like AIG’s default would have done.
If they eventually sell it, it's easier if it's already publicly traded.
It gets worse. Another bailout coming is the Auto companies.
http://www.freerepublic.com/focus/f-news/2083351/posts
It’s a election year, and Michigan and Ohio are battleground states.
You think Obama or McCain is gonna say no to that one?
Autos, then the Airlines, it’s gonna be a tough 09.
That’s my favorite part of economic history — all of the big movements seem like abstractions from a distance. So it’s easy to stand on principle and talk about “moral hazards.”
Then one day a can of soup costs $6.00 and people start yelping like whipped dogs.
“The Fed is a private corporation, not a government entity.”
This, I believe, is a fallacy. The Fed is a government entity because it has governmental power (i.e. a monopoly on issuing currency). It lacks is oversight by the electorate (like the Supreme Court) and checks and balances from other branches. The problem with the Fed is not that it is more private than, say, Congress. The problem is that the Fed is way more powerful than the democratically-elected branches dare to be.
The generic Micro 101 answer is better policing of mergers or a reformulation of monopoly indices/calculations.
I think history shows that will work for a while (a few decades?) before the problem repeats again.
The $85,000,000 came with strings attached: 2 year loan, LIBOR + 8.5% interest rate (~10%), management fired, federal government gets 80% control. Loan is to be paid off by liquidating the company.
Existing shareholders just got wiped out. Instead of declaring bankruptcy overnight, AIG is going to be dismantled over two years.
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