The Wall Street Journal reports, as was rumored on Friday, that AIG appears on the verge of approving a considerably enlarged and sweetened rescue package from the government.
We were less than happy with the idea when it first surfaced (see our rant "The Black Hole Gets Bigger: AIG Back for Yet Another Bailout").Let us review the basics:
1. AIG came desperate to the US government for a rescue, and a whopper at that. The Federal government has no oversight responsibility for AIG, which oh by the way, just happens to have very large overseas operations (in other words, one could take the position that AIG's problems, for a whole host of reasons, are really not the Federal government's problem). However, having seen the disruption that the collapse of Lehman caused, and knowing that AIG was a substantial and unhedged writer of credit default swaps, the powers that be were worried that a bankruptcy could be cataclysmic.
2. The initial deal was punitive by design. Some key elements of the Fed's loan:
– An $85 billion, two year facility with interest at Libor + 850 basis points (and note the 850 basis point was the commitment fee, payable on the whole amount; the Libor addition kicked on on funds drawn down)
– The loan was secured by all of AIG's assets and those of its primary non-regulated subsidiaries
– The government received 79.9% of AIG and had a veto right on payment of common and preferred stock.
– The loan was to be repaid by asset sales
Read on.
They should have just put out another stimulus, that would have given people money to pay their mortgages, etc and helped the economy more. Now most banks are raising their fees, and mortgage companies who used to give a 15 day grace date on payments before late fees have now changed to 7 days.
ReplyDeleteAlso DHL is having all kinds of problems ( a few years ago they bought up Airborne) now with people spending less money, not ordering from catalogs, internet etc...well simply not buying things, expect more trouble for more shipping companies. DHL 10K+ jobs cut more to follow, hubs being shut down, every day some big store shuts down or files bankruptcy (Circut City the latest)
PBS running more documentaries about the crash of '29, the depression.
Obama and staff will be so busy cleaning up the Gerbil's mess.
Chicago Native,
ReplyDeleteThis is the United Snakes of Moronica under the Gerbil Administration: Land of the thieves. Home of the slaves. Do you think that the Gerbil cares about the American people and middle class? I think not. Yes, the Obama and staff will clean up the Gerbil's mess including all of our help and with the Clinton Administration playbook.