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Old 09-16-2008, 10:33 PM  
jAZ jAZ is offline
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Bush Buys 80% of AIG with $85,000,000,000 taxpayer "loan".



http://talkingpointsmemo.com/news/20..._85_billio.php
Government announces $85 billion loan to save AIG

Government announces $85 billion loan to rescue AIG to stave off further financial turmoil

Staff
AP News

Sep 16, 2008 20:28 EST

In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.

"The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."

Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."

"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.

The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.

Earlier, Fed chairman Bernanke and Paulson met with Sen. Christopher Dodd, D-Conn., Majority Leader Harry Reid, D-Nev., and House Republican leader John Boehner of Ohio, to brief them on the government's option.

"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Reid told reporters. "The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."

On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent and another 45 percent after hours. Still, no deal emerged.

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."

New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."

Source: AP News
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Old 09-16-2008, 10:34 PM   #2
irishjayhawk irishjayhawk is offline
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I don't get where Bush comes in.
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Old 09-16-2008, 10:37 PM   #3
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Quote:
Originally Posted by irishjayhawk View Post
I don't get where Bush comes in.
He's the President. In theory, none of this happens without his authorization.
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Old 09-16-2008, 10:40 PM   #4
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You know the keywords to your post, correct?
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Old 09-16-2008, 10:42 PM   #5
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HA! I wish the president had a say in affairs handled by the Fed.

Or Congress. Or my cat. Or ANYBODY
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Old 09-16-2008, 10:49 PM   #6
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Quote:
Originally Posted by irishjayhawk View Post
You know the keywords to your post, correct?
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Originally Posted by SNR View Post
HA! I wish the president had a say in affairs handled by the Fed.

Or Congress. Or my cat. Or ANYBODY
Correct me if I'm wrong, but I don't see how this can be the case...
"...the government will receive a 79.9 percent equity stake in AIG".
...and not have the necessary authorization of the Chief Executive.
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Old 09-16-2008, 11:14 PM   #7
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Quote:
Originally Posted by jAZ View Post
Correct me if I'm wrong, but I don't see how this can be the case...
"...the government will receive a 79.9 percent equity stake in AIG".
...and not have the necessary authorization of the Chief Executive.
It's the Fed doing it. The previous bailouts had to go through Congress via a bill (remember, the President does not make policy). This time, it was the Fed doing it. Now, whether they had to borrow the money from the Treasury to do that, I don't know. The President doesn't control the Fed. No one does, really.

The problem is that there really is no choice, at this point. A collapse of AIG could mean the collapse of the banking system as we know it, because no other bank wanted to take on responsibility of this. That's also why all the major banks are putting money out to a fund in case one of them collapses. They're all freaked out right now.
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Old 09-16-2008, 11:16 PM   #8
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Old 09-16-2008, 11:38 PM   #9
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Quote:
Originally Posted by Silock View Post
The problem is that there really is no choice, at this point. A collapse of AIG could mean the collapse of the banking system as we know it, because no other bank wanted to take on responsibility of this. That's also why all the major banks are putting money out to a fund in case one of them collapses. They're all freaked out right now.
Agreed.

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Originally Posted by Silock View Post
It's the Fed doing it. The previous bailouts had to go through Congress via a bill (remember, the President does not make policy). This time, it was the Fed doing it. Now, whether they had to borrow the money from the Treasury to do that, I don't know. The President doesn't control the Fed. No one does, really.
For the government to take an equity position, there was a decision somewhere in the executive branch that Bush had to authorize. The Fed doesn't own those shares of AIG.

I might be wrong, but I don't think so, and to this point no one has explained how I might be wrong.
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Old 09-16-2008, 11:46 PM   #10
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Your criticism would make more sense if prominent Democrat Senators hadnt been calling for the bailout, and if it didnt make complete and total sense to begin with.

Between Lehman Bros, Bear Stearns, and AIG, IMO this was the ONLY case where the bailout makes sense. The world doesnt end if an I-bank goes down. AIG has their tentacles into everything and insured hundreds of billions worth of these mortgage securities. AIG going down would suddenly yank the insurance that all the more prudent banks were counting on and directly lead to the failure of banks and financial institutions all over the world. Total chaos, worldwide recession guaranteed.

The cost? Not much really. AIG has the assets to back up their debts, they simply needed a few months to free up cash. This really isnt even much of a bailout, its a short-term loan at 11% interest that AIG should be able to pay back in full by the end of the year, maybe 2010 at the latest. The taxpayers are going to come out of this with a pretty decent profit to blow on entitlement programs. I assume the feds are holding the 80% stake in the company as collateral so there isnt even ANY risk of loss at all for the govt, unlike F&F and Bear Stearns.
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Old 09-16-2008, 11:50 PM   #11
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Quote:
Originally Posted by alnorth View Post
Your criticism would make more sense if prominent Democrat Senators hadnt been calling for the bailout, and if it didnt make complete and total sense to begin with.

Between Lehman Bros, Bear Stearns, and AIG, IMO this was the ONLY case where the bailout makes sense. The world doesnt end if an I-bank goes down. AIG has their tentacles into everything and insured hundreds of billions worth of these mortgage securities. AIG going down would suddenly yank the insurance that all the more prudent banks were counting on and directly lead to the failure of banks and financial institutions all over the world. Total chaos, worldwide recession guaranteed.

The cost? Not much really. AIG has the assets to back up their debts, they simply needed a few months to free up cash. This really isnt even much of a bailout, its a short-term loan at 11% interest that AIG should be able to pay back in full by the end of the year. I assume the feds are holding the 80% stake in the company as collateral so there isnt even ANY risk of loss at all for the govt, unlike F&F and Bear Stearns.
Unless it's bad reporting, the governement OWNS this company. They got 80% of the company in exchange for a LOAN. That's how little this company was worth.

Their supposed assests are largely garbage.
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Old 09-16-2008, 11:56 PM   #12
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For the government to take an equity position, there was a decision somewhere in the executive branch that Bush had to authorize. The Fed doesn't own those shares of AIG.
Not necessarily. The Fed is also comprised of private banks, so who owns what gets a little murky at this point, since details are still so sparse.
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Old 09-16-2008, 11:56 PM   #13
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Originally Posted by jAZ View Post
Unless it's bad reporting, the governement OWNS this company. They got 80% of the company in exchange for a LOAN. That's how little this company was worth.

Their supposed assests are largely garbage.
AIG wasn't insolvent, though. They just had a liquidity problem.
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Old 09-16-2008, 11:57 PM   #14
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Not necessarily. The Fed is also comprised of private banks, so who owns what gets a little murky at this point, since details are still so sparse.
Like I said, if it's bad reporting, then... But if it's not, I'm on solid ground in my attributions.
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Old 09-16-2008, 11:58 PM   #15
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Quote:
Originally Posted by jAZ View Post
Unless it's bad reporting, the governement OWNS this company. They got 80% of the company in exchange for a LOAN. That's how little this company was worth.

Their supposed assests are largely garbage.
You simply dont know what you are talking about. This isnt a high-wire investment bank made up only of a pile of heavily-leveraged cash and high-rolling brokers, AIG is by far the largest insurance company in the world, employing over 100,000 people. This is a monster organization.

AIG's assets are over a trillion dollars, they just arent liquid enough to meet their unexpected short-term liabilities. They earn enough in pure profit from their life, P&C, and bond insurance policies to pay back this loan in 2 or 3 years without liquidating anything. The mortgage security insurance they got into accounts for a small portion of their net worth.
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