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Read their lips: 'No more bailouts' as Fed says no to AIG
The US Federal Reserve has refused a desperate plea from American International Group (AIG), the world's biggest insurer, for a US$40 billion bridging loan that it hoped would save its AA+ credit rating and allow its survival. Instead the Fed is asking JP Morgan and Goldman Sachs to lend US$70 billion to US$75 billion to AIG. The refusal of the Fed and the US Treasury to bail out Lehman Bros was the catalyst for a weekend of chaos on Wall St that saw Merrill Lynch sold for a cut price to Bank of America and the Fed widen its pool of securities it lends against to include equities and lower rated bonds. 10 Big banks also launched a US$70 billion cash fund to provide liquidity if any of them were in trouble. The US Federal Reserve is essentially saying that the assisted sale of Bear Stearns in March and the bailouts of Fannie Mae and Freddie Mac are the end of the line. Any more risks creating massive moral hazard problems. The collapse of AIG would have more severe implications than the collapse of Lehman Bros. AIG has over US$1 trillion in assets, whereas Lehman Bros had just over US$600 billion. AIG has 116,000 employees and operates in over 100 countries, whereas Lehman had 26,200 employees. AIG owns the world's largest airline leasing operation with over 900 passenger and cargo jets.There is no word yet on whether JP Morgan or Goldman Sachs either can or would want to lend that amount of money to AIG, which is heavily loaded with securitised debt over mortgages. AIG is tipped to write down the value of these bonds by US$30 billion when it next reports its results. Meanwhile, New York Insurance authorities have relaxed a rule that would have prevented AIG borrowing US$20 billion against the assets of its subsidiaries. AIG has has life insurance and general insurance operations in New Zealand since 1970.
6 Comments
Looks like the Fed is
Looks like the Fed is calling in a few favours from JP Morgan and Goldman - presumably as payback for reducing the number of competitors they face. It will be interesting to see how the deal is structured to avoid AIG being downgraded by the credit rating agencies.
excellent news!! What a turnaround
excellent news!! What a turnaround from the Fed. Fancy that - the industry that created and profited from the biggest debt bubble in history is actually being told to clean up its own mess. Are we seeing a return to capitalism and away from corporate welfare? I certainly hope so, taxpayers around the world can breathe a sigh of relief.
AIG won't fail. The industry
AIG won't fail. The industry simply can't let it which is of course why the Fed has done what it has done in this instance. Nice work.
Mitch The thing is that
Mitch
The thing is that AIG has already "failed", it has lost 80% in its share value and iis hemorrhaging money and the point of "blue chip" companies is that this never happens to them, they have lower returns for unassailability, AIG has neither.
Neven
S+P cuts AIG ratings further:
S+P cuts AIG ratings further:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHdlGMn29NOs&refer=home
Neven, in these times share
Neven, in these times share value is more a measure of investor ignorance and panic than underlying economic fundamentals. Unless of course you're an efficient market theory sucker.