Throwing Good Money After Bad - AIG gets another $30 billion

AIG may get another $30 Billion.

AIG has already received $150 billion to back $300 billion in derivatives contracts.

The Wall Street Journal gives a little more detail:

The new funding is intended to support AIG as it absorbs $60 billion in quarterly losses and operational and competitive upheaval. Under the plan, the insurer will repay much of the $40 billion it owes the Federal Reserve loan with equity stakes in two AIG units overseas -- Asia-based American International Assurance Co. and American Life Insurance Co, which operates in 50 countries.

Repayment was originally supposed to be in cash with interest. In addition, AIG will securitize $5-$10 billion in debt, backed with life insurance assets, to further reduce its debt burden.

So, what exactly are these life insurance assets?
Worthless Credit default swaps?

Even worse, AIG will be getting more lenient bail out terms:

The agreement is likely to include more lenient terms on an existing government investment in AIG preferred shares and a lower interest rate on a $60 billion government credit line, a source familiar with the matter told Reuters on Saturday.

The equity commitment would give AIG the ability to issue preferred stock to the government later, the source said.

The London Interbank Offered Rate (Libor) floor on the interest rate AIG pays on the government's credit line is expected to be removed under the new terms, which would save the insurer about $1 billion a year, the source said.

AIG currently pays 3 percentage points above three-month Libor.

AIG will also give the U.S. Federal Reserve ownership stakes in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt, the source said.

This is like the Wimpy hamburger derivative stand. I will gladly pay you Tuesday for a Hamburger Today.

Here comes TARP II, another $750 billion

Bloomberg reports:

U.S. firms have reported more than $700 billion in losses and writedowns since the start of 2007

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Are we quickly approaching a crossroads?

Have we reached a point where we have invested/wasted too much money already in this failed financial system to turn back?

It seems like we have tied our survival and well being of future generations to this failed financial system. Or maybe that is how they want us to think?

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well one thing

it does seem that with enough screaming and shouting the Obama administration can be influenced.

I have a funny feeling Congress is going to raise bloody hell and maybe the people do too.

Plus we have so many experts, world renowned economists doing the talk circuits, blogging, public speaking...
to bring more pressure on the Obama administration to abandon this and nationalize (aka Sweden) the financial sector to basically wipe out these toxic assets plus bring down the financial oligarchy, who clearly have their players in the Obama administration (and Congress) itself.

Of any major issue though, so far they are impervious so I don't know what it's going to take.

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Not optimistic

We have no reason to be optimistic. As you pointed out in your post titled "Regulating Alphabet Soup", the Obama administration has appointed many of the chief instigators and enablers of the financial collapse to repair the problem. In a sense, it is reasonable to put people who know how the system works in charge of repairing it. But those should be operational positions. Putting them in policy-making positions (as the Obama administration has done) is manifestly idiotic. These are the very people whose past behaviors have unequivocally demonstrated an inability to anticipate the consequences of their decisions (or actions). And they're in charge now?? By the same reasoning, why not bring back Alberto Gonzales to fix the damage to the Justice Department? Why aren't the people (and there were plenty) who could forsee the collapse, now in charge of our financial policy?

This has been a collossal failure by President Obama and because it seems to involve his judgement of people (which is a very personal issue) and not some strategic error, I doubt it can be fixed easily. Who am I or anyone else to tell a Harvard-educated lawyer, surrounded by his Harvard-educated friends, that he is a poor judge of character and ability? I don't think we'll be able to impact that no matter how loud we yell. Massive street demonstrations might do it, but as a society we no longer seem capable of that.

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My 2¢ Worth.

The invitation here at EP used to be, "Come speak your mind, one dime at a time." Presumably, Robert changed it 2 cents since that might be what a dime is worth nowadays.

Anyway, I'd like to spend my 2¢ by passing on the insightful words of John Carney:

No company has ever lost as much as AIG did last quarter. All told, it lost almost $100 billion last year, with $61.7 billion of those losses in just the last quarter of 2008. Few companies have ever been worth that much, or been able to put anything like that much at risk. It's almost unfathomable.

Let's see if we can break it down into a more reasonable number.

Every day AIG lost: $670 million.

Every hour AIG lost: $27.9 million.

Every minute AIG lost: $465 thousand.

Every second AIG lost: $7,750.

That's more like it. It means that every six and half seconds, AIG loses the equivalent of the median household income in the US.

Now, it seems that every economist, trader, financial consultant, casual observer, etc., etc., sees the idiocy in continuing to support failed institutions like AIG, Citicorp, JP Morgan Chase, Goldman Sachs, et al. The only people that see the merits in this are Geithner, Summers, Bernanke and Obama. These are really smart guys but they are looking awfully lonely out there on that optimistic island, don't you think? Is it coincidental that they all happen to be part of the governing administration and all the doubters are not? Does their inside postion give them some kind of privileged perspective that no one else can have?

So, here is what I can't stop thinking. Are they part of this grand financial scam, or is there a gun being held to their heads? If it is the latter (yeah, that's what I think is most likely), who is holding the gun?

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sense on cents

Yeah, I changed the slogan but it was more than reflecting deflationary spirals, I thought the 2 ¢ made it more clear we're a community blog.

Bill Simon gave a Moyers interview that the oligarchy was behind the "gun to their heads".

I would look to Saudi Arabia as well as China as the reasons to perpetuate this incredible zombie. The Godzilla of Zombies.

I think they need to break up AIG, which most divisions are fine, turning a profit and it was just one division in London which screwed the entire company, so I think they should break it up, set the good parts back to the private sector and basically wipe out those derivatives and stuctured investments though a public clearing house or something...

but they need to move, this zombie bank slow death...well, if they believe they are staving off an economic collapse I need to see those numbers because it looks like it's causing an economic collapse by not plain dealing with this Ponzi scheme operations.

Could also be the executives/boards/large shareholders of these insitutions themselves...

but it appears the stock market is "nationalizing" these banks anyway, their stocks are now penny stocks.

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I saw that interview.

I agree with you that AIG needs to be broken up. Only the derivatives unit in London is a drain. Likewise, the mega banks need to be broken up. Commerical banking and investment banking need to be separated as they were 15-20 years ago. The fallacy of "too big to fail" is as evident as the fallacy of "free-market capitalism" to any rational person.

There is enormous pressure coming down from the oligarchs, I am sure of that. Further connections to the Saudi's, vis a vis countering the Iranians and the Ruskis in the Middle East, makes quite a bit of sense too.

But damn, why do they continue the ruse when there is every indication that you, me and all of the experts who know more than we do, are on to the game? This is definitely uncharted territory and past indicators are no longer valid, in my opinion.

At minimum, we need to re-think the recently passed stimulus package and the new omnibus budget. I'm afraid that the "bottom" may not even be on the horizon.

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