Sure, everybody likes to feel needed, but the folks at the Fed could probably do with fewer cries for help these days. In one crazy, nightmarish Monday for US financial markets, the Fed not only refused help to flailing Lehman Brothers (which subsequently filed for Chapter 11 protection) and watched as Merrill Lynch agreed to be bought by Bank of America – it also had to field requests from insurance giant AIG for a $40 billion bridge loan that would help it stave off a potentially fatal ratings downgrade.
The insurer –- the US’s largest –- has been brought to the financial brink by its exposure to risky credit-default swaps and subprime mortgage-backed securities holdings. It has posted more than $18 billion in losses in the past nine months. As AIG’s stock price has plummeted (and its access to capital has contracted), ratings agencies have gotten nervous and threatened to cut the company’s credit rating –- a move that The New York Times reported could kill AIG within a few days.
After failing to seal a deal for a capital infusion from private equity firms, the company turned to the Federal Reserve for help.
The Fed didn’t seem all that interested in directly lending AIG money. Though the institution does have the power to broaden access to its funds, its primary dealer credit facility is technically accessible only to investment banks. And after refusing help to Lehman, it was loath to bail out AIG.
However, while AIG may have started out the day with only two days to live, it ended in a slightly more hopeful (though still pretty bleak) place. First, New York state regulators gave the company permission to access capital from its subsidiaries, essentially allowing it to lend money to itself. And while the Fed hasn’t agreed to a direct loan, it is petitioning Goldman Sachs and JPMorgan Chase to round up $70 billion to $75 billion in private sector loans for the company. Those measures, along with AIG’s plans to sell some assets (such as its Variable Annuity Life Insurance unit), might bring the company back from the brink. What they don’t do is change the fact that, right now, AIG is living one day at a time.
UPDATE: Despite its emergency measures to raise capital, AIG couldn’t hold off a downgrade from ratings agencies after all. S&P’s and Moody’s both cut the company’s credit ratings late on Monday, a move that allows AIG’s trading partners to require the company to raise an additional $14.5 billion in capital. It’s not clear how long it will take for AIG to raise that money, or if it can do so in time to fend off bankruptcy.
You printed the following today:
” As AIG’s stock price has plummeted (and its access to capital has contracted), ratings agencies have gotten nervous and threatened to cut the company’s credit rating –- a move that The New York Times reported could kill AIG within a few days.”
However, all of the rating agencies downgraded AIG last night on September 15th. I would recommend you update your information considering this was posted several hours after several media announces of the rating downgrade.
This has all been planned and conspired from the very first day Bush Jr. took office. From the rigged elections in 2000 and 2004, staged and complicit acts of mass murder from 911, sub-prime mortgage fiasco which was nothing more than Bush Sr’s S&L scandal on steroids, to the complicity of media and political pundits nationwide….everything you see regarding Fed takeovers and bailouts to crimes of war, religous torture and debt….were all scripted the day Bush Jr. took office.
Before Bush leaves….you will see many more collapses and bank failures that will make the crimes of his father, Jeb, and Neil look like someone stealing lunch money. The corruption of EVERY department and agency when the US government is something that may never heal. From illegal State Attorneys and Supreme Court justices to violently corrupt law enforcement and security agencies that would never have existed without the staged 911 lies, from a rotten education system to a political justice and FDA….the lives of every America are as fragile as the AIG stock. enjoy……….
What should we expect in terms of 20-25 years period in the future? If AIG’s life cannot be forecasted even for the next day, should we continue to pay our pension programmes? I understand that as soon as we (i mean the clients) stop to pay the probability of AIG’s collapse raises rapidly, but is there any wisdom to give the money to that company?