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| Sep 17 @ 2:25 AM |
Government steps in again, bails out AIG with $85B
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burnslikethesun
Posts: 9,606
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AP - 23 minutes ago
WASHINGTON - Another day, another bailout. The U.S. government stepped in Tuesday to rescue American International Group Inc., one of the world's largest insurers, with an $85 billion injection of taxpayer money.
 LOOK A LINK ---------->>>>>>well its a link to another link that's like the front that links you straight to the story.
I wonder if they gonna pay it back and how? 
Us again?
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| Sep 17 @ 2:35 AM |
Government steps in again, bails out AIG with $85B |
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vinnytmd
Posts: 6,004
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No, they did not give them $85 billion. It is a bridge loan in lieu of equity.
Sept. 17 (Bloomberg) -- American International Group Inc. averted the worst financial collapse in history by accepting an $85 billion federal loan and giving the government a majority stake.
The U.S. reversed its opposition to a bailout of AIG, the nation's biggest insurer by assets, after private efforts failed and the Federal Reserve concluded that ``a disorderly failure of AIG could add to already significant levels of financial market fragility,'' according to a Fed statement late yesterday.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aw.hphkcbZ_o&refer=worldwide
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| Sep 17 @ 4:51 AM |
Government steps in again, bails out AIG with $85B
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burnslikethesun
Posts: 9,606
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Followed your link. Maybe I missed what you made I mean found. This is what I found.
Sept. 17 (Bloomberg) -- The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the bankruptcy of the nation's biggest insurer and the worst financial collapse in history.
The Federal Reserve will provide a two-year loan, take 79.9 percent of the New York-based company's stock and replace its management because ``a disorderly failure of AIG could add to already significant levels of financial market fragility,'' according to a statement by the central bank late yesterday.
AIG unraveled as the worst housing crisis since the Great Depression led to more than $18 billion of losses in the past year. A meltdown could have cost the financial industry $180 billion, according to RBC Capital Markets, because AIG provided insurance on more than $441 billion of fixed-income investments held by the world's biggest institutions, including $57.8 billion in securities tied to subprime mortgages.
``Nobody really knows what it would have meant if they would have been allowed to fail, but there was an enormous amount of systemic risk,'' said David Havens, a credit analyst at UBS AG in Stamford, Connecticut. ``It's an enormous relief.''
The agreement will give the company, which sells insurance in more than 130 countries, time to sell assets ``on an orderly basis,'' AIG said in a statement. Chief Executive Officer Robert Willumstad, 63, will be replaced by former Allstate Corp. CEO Edward Liddy, 62, according to a person familiar with the plans, who declined to be identified because the change hadn't been formally announced.
Stocks Rebound
The rescue failed to assuage concern over the possibility of other financial collapses. Banking shares in European trading tumbled for a third straight day, led by U.K. mortgage lender HBOS Plc and Royal Bank of Scotland Group Plc. Treasuries pared early losses, leaving yields on 10-year notes up 3 basis points to 3.47 percent.
AIG fell 80 percent in the past week as investors grew increasingly concerned that the company would go bankrupt. The seizure in credit markets and more than $500 billion of losses related to subprime mortgages forced the government to take over Fannie Mae and Freddie Mac, which control about half of America's $12 trillion in home loans, and drove Lehman Brothers Holdings Inc. out of business.
``I am floored,'' said former Treasury counsel Peter Wallison in an interview. ``No one could have possibly imagined this a few months ago. I can't imagine why the Fed would do this unless they were sure AIG's failure posed systemic risk.''
The survival of the 89-year-old insurer fell into doubt when Standard & Poor's and Moody's Investors Service cut its credit ratings on Sept. 15. The reductions threatened to force AIG to post more than $13 billion in collateral when the company was already short on cash. AIG couldn't raise money by selling shares after the stock plunged to less than $4 a share from $70.11 in October of last year.
Loan Terms
The Fed's loan doesn't require asset sales or the company's liquidation, though these are the most likely ways AIG will repay the Fed, central bank staff officials told reporters on condition of anonymity. Interest will accrue at the three-month London interbank offered rate plus 8.5 percentage points.
The ``punitive'' interest rate on the loan ``makes it extremely clear that this is not a subsidy extended to keep the company afloat but rather a stranglehold that makes AIG unviable while ensuring that its obligations will be met,'' said Marco Annunziata, an analyst at UniCredit SpA, in a note to clients. ``This is to all extents and purposes a controlled bankruptcy.''
The Fed doesn't have an expectation of whether AIG will be smaller, nonexistent or similar to its current form at the end of the loan's term, the staffers said.
Private Solution Failed
The Fed or Treasury will end up holding the AIG stake, the staffers said. The Fed bailed out AIG while refusing aid to Lehman, which collapsed earlier this week, because financial markets were more prepared for a Lehman failure, a Fed staff official said.
The Fed stepped in after JPMorgan Chase & Co. and Goldman Sachs Group Inc., which were brought in to help assess AIG, failed to come up with a solution, according to a person familiar with the talks. Liddy is currently on the board of Goldman, the company Henry Paulson ran as CEO before becoming the U.S. treasury secretary in 2006.
Willumstad, the former Citigroup Inc. president who left the bank in 2005 to seek a CEO position, was named to AIG's top post in June. His predecessor, Martin Sullivan, was chief for three years until being ousted after two record quarterly net losses. Maurice ``Hank'' Greenberg reigned at AIG for almost four decades until he was forced to retire in 2005 amid regulatory probes.
Unit Sales
Greenberg, who remains one of the company's biggest stakeholders, said the company needed a bridge loan instead of a plan that put the company under government control. An investor group led by Greenberg said in a federal filing hours before the rescue was announced they might want to buy the company or some units or make loans to AIG.
[Edited on 9/17/2008 4:56 AM]
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| Sep 17 @ 4:54 AM |
Government steps in again, bails out AIG with $85B |
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burnslikethesun
Posts: 9,606
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``Why would you want to wipe out shareholders when you just need a bridge loan?'' Greenberg, 83, said in an interview before the announcement. ``It doesn't make any sense.'' Greenberg declined to comment after the Fed announcement, spokesman Glen Rochkind said.
AIG may sell its stake in reinsurer Transatlantic Holdings Inc., its consumer finance division American General Finance, its U.S. auto insurance business, and its asset manager, analysts have said.
AIG's aircraft-leasing unit International Lease Finance Corp. may be bought by investors led by the unit's founder, Steven Udvar-Hazy, the Wall Street Journal reported, citing unnamed people. Udvar-Hazy has been in discussions with potential investors since Sept. 14, the Journal said.
The insurer rejected a bid for a joint investment by Allianz SE and J.C. Flowers & Co. on Sept. 14, said two people with knowledge of the offer.
Allianz, Europe's biggest insurer, and Flowers, the New York-based private equity firm run by J. Christopher Flowers, proposed the cash infusion to help AIG fend off a liquidity crunch, the people said.
Sabia Schwarzer, an Allianz spokeswoman, declined to comment. Flowers and Nicholas Ashooh, an AIG spokesman, didn't return calls seeking comment.
Last Updated: September 17, 2008 04:05 EDT
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| Sep 17 @ 5:01 AM |
Government steps in again, bails out AIG with $85B
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burnslikethesun
Posts: 9,606
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From what I read, is yep they did. I dont see your quote anywhere on the page. Yet at last, it is quite late.
This caught my eye.....
``I am floored,'' said former Treasury counsel Peter Wallison in an interview. ``No one could have possibly imagined this a few months ago. I can't imagine why the Fed would do this unless they were sure AIG's failure posed systemic risk.''
Nader did. Years ago.
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| Sep 17 @ 10:01 AM |
Government steps in again, bails out AIG with $85B |
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Gallows_Humor
Posts: 8,063
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No, they did not give them $85 billion. It is a bridge loan in lieu of equity. .....
this is technically true... but a true bridge loan it is not... they loaned the corp 85 billion dollars to keep the doors open... but in exchange for the loan.. they seized 79.9 percent of the ownership.. and all the assets are to be sold off.
my question is... who owns the remaining 20.1 percent????????
which shareholders lost everything ??.. and which shareholders were allowed to keep their stock ??... and what will that stock be worth after the sell off of assets...
my prediction is.. that some assets will be left intact ..and these shareholders will end up with a profitable company but the almost 80 percent who's stock was seized will still be losers...
any way you look at it..it stinks.. the bail out loan was needed as this company does have day to day business that must be kept viable.. but imho 100 percent of all stock should have just been frozen.. while all assets are to be sold off... and then divide any left over money equally among all shareholders... 
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| Sep 17 @ 4:29 PM |
Government steps in again, bails out AIG with $85B
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vinnytmd
Posts: 6,004
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More than likely the outstanding stock was diluted. Each shareholder will have shares that are worth much less than before.
The assets that they will liquidates are holdings that make up their portfolio, not hard assets. I will read the SEC documentation when it comes out. My preliminary understanding is that the loan will be repaid with a combination of asset liquidation and the resale of the stock issued to the Treasury.
In the end the Treasury could make a huge profit on this. Time will tell.
The deal very much resembles what is known as a bridge loan as it has a two year term and can only be used for the purpose of liquidity.
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| Sep 17 @ 5:07 PM |
Government steps in again, bails out AIG with $85B |
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Gallows_Humor
Posts: 8,063
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 ...a good post Vinny... 
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| Sep 17 @ 5:14 PM |
Government steps in again, bails out AIG with $85B
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vinnytmd
Posts: 6,004
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Well thanks GH! 
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| Sep 17 @ 5:22 PM |
Government steps in again, bails out AIG with $85B |
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kattsmeow
Posts: 21,272
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The goverment should not have done this! Grr,,,,
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| Sep 17 @ 5:28 PM |
Government steps in again, bails out AIG with $85B
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vinnytmd
Posts: 6,004
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katt, I agree. AIG is a worldwide company. Why didn't others pitch in? It is a bad precedent and a step towards the socialism that Barry is pushing for.
That said it may just turn out to be a great investment. Many solid companies just run low on cash. Once they catch up their profits once again soar. If AIG survives and their stock price soars the Treasury could make hundreds of billions.
Never know.
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| Sep 17 @ 9:17 PM |
Government steps in again, bails out AIG with $85B |
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lefthandedluckie
Posts: 5,081
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It is easy to see why this happened! Bush and company know if this business went down the financial stability, already shaky, of our country would be heading for a meltdown within the next 6 months! As it is it is just going to forestall the inevitable end till after the election! 
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| Sep 17 @ 9:22 PM |
Government steps in again, bails out AIG with $85B
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Say_Yes
Posts: 1,786
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The goverment should not have done this! Grr,,,,
Actually, they had to do it. If they had not, the entire financial system could have collapsed. AIG is one of the primary insurers of debt around the world. If they went out of business then the insurance on all of the that debt would have disappeared. Without that insurance being in place trillions of dollars of debt would have been called, by lenders, due to the terms of the loan agreements in place. There is no way that the money could have raised in the short term to pay off that debt, which would result in a collapse of the commercial market that would make the housing market seem like a picnic.
The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.
The worries were triggered after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance -- such as banks and other financial companies -- would have found themselves without protection against losses on the debt they hold.
"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."
Source - AP
Unlike Lehman, analysts said, AIG, a $1 trillion company, was too deeply entangled in global markets and financial firms for the Fed to allow it to fail without putting the financial system at risk. "If it goes down, it takes too many other institutions with it," said Mark Zandi, chief economist at Moody's Economy.com., a West Chester, Pa., forecasting firm. "It's just too big to fail."
Even Chuck Schumer supported the bailout.
Senator Charles Schumer, a New York Democrat, who was also briefed on the plan, said in a statement, "The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times. Hearing of these plans, you have to stop to catch your breath. But upon reflection, the alternatives are much worse."
Source - Boston Globe
Of course, if you like the idea of another great depression, then yes, failing to bail out AIG was a horrible idea. Personally, I would prefer to avoid that happening.
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| Sep 17 @ 9:35 PM |
Government steps in again, bails out AIG with $85B |
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alivenwell351
Posts: 1,514
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It's my understanding AIG has a pretty good sized and lucrative airplane leasing business that's first on the selling block...
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| Sep 17 @ 9:39 PM |
Government steps in again, bails out AIG with $85B
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vinnytmd
Posts: 6,004
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alive, not much market for Airplanes right now. Airlines all over the world are going out.
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| Sep 17 @ 9:53 PM |
Government steps in again, bails out AIG with $85B |
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Say_Yes
Posts: 1,786
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BTW, in the $85 billion bridge loan to AIG, the Federal Government is the senior debt, i.e., the feds get paid before anyone else does. Also, the loan is at 11.50% interest, which should provide a nice profit to the government.
Finally, AIG has substantial assets, which can & will be sold off to pay off that debt.
The interest rate the government is charging AIG for the loan is high — 11.5 percent. Because the government can borrow money right now at around 3.4 percent, taxpayers stand to make a handsome profit if all goes well. The government is first in line to be paid back on the loan, which is backed by the assets of the entire company.
Key to the U.S. being repaid for its loan is whether AIG can sell its assets, how quickly and for what price. For the company, that might mean putting some of its profitable, noncore assets, such as its aircraft leasing business, on the block. AIG's breakup value could top $150 billion, according to a preliminary estimate from FBR Capital Markets.
"The odds are pretty high that it will end up being a good investment for taxpayers," said Mark Klock, finance professor at George Washington University. "I think that AIG will be able to dispose of assets in an orderly fashion in the next year or so and the government will actually get back the money lent out — and more — in interest," he said.
Source - CNBC
The problem with AIG, was not one of their being solvent, but rather their being cash strapped, because of down grades in their credit ratings on Tuesday.
S&P lowered AIG's long-term counterparty rating three grades to A- because of ``reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses,'' the rating company said yesterday. Moody's cut AIG's senior unsecured debt two grades to A2. Fitch Ratings today lowered its assessment to A from AA-.
Source - Bloomberg News
With the downgrades in credit came a requirement for a huge infusion of cash reserves, as the amount of reserves required for an insurance agency, is based on their credit rating. While AIG has the assets that are worth $150 billion or so, they are not assets that can be sold in the short term, to raise cash. So, while AIG was solvent, they were cash poor and they were unable to raise the cash required in the time frame they had.
BTW, the airplane leasing company is one of their top assets. These planes are leased long term to numerous corporations around the globe & there will be a lot of interested buyers in this portion of their portfolio.
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