Fed blinks, bails out AIG with $85Billion loan.

[Blackjack200]

Originally posted by: Farang

Originally posted by: Blackjack200
Here's a thought I just had: we just gave AIG $85 billion for an 80% stake. But AIG is a global insurance company, and it's failure would have dire consequences in the global markets. Why not try to involve other govenments as well? Loan AIG $1 billion, and receive warrants that would give you 1% control of the company if you exercise them. I mean, this is just a huge load for the U.S. taxpayer.

I'm not much of an economist but that seems like giving your local McDonalds $5,000 to help them stay in business. The other countries are just customers.

More like loaning McDonald's $5,000 with a warrant that would grant you 1% of it's future profits. A damn good deal if I think McDonald's may be profitable again when the business environment improves.

The problem is, no one knows when that will happen.

 

[mshan]

To me, it doesn't sound like the Fed didn't "bail out" AIG (2 year $85 billion dollar loan)

Rather, they might have bought institutions around the world some time to unwind their exposure to AIG over time, rather than immediately at market open tomorrow morning...

And again, it kind of sounds like they will end up making a lot of money years down the road...

 

[Blackjack200]

Originally posted by: Infohawk
AIG's investors better lose everything.

They are keeping 20%.

 

[halik]

Originally posted by: senseamp
That's like saying someone is healthy aside from the whole full blown AIDS thing, just gotta separate those.
This company is worthless.

As far as analogies go, that was by far the stupidest thing I've ever read on the interwebs. O/p just stop talking...

 

[Blackjack200]

Originally posted by: mshan
To me, it doesn't sound like the Fed "bailed out" AIG (2 year $85 billion dollar loan)

Sounds like they just bought institutions around the world some time to unwind their exposure to AIG over time, rather than immediately at market open tomorrow morning...

And again, it kind of sounds like they will end up making a lot of money years down the road...

The problem is that it is a risky loan that AIG simply could not have secured in the markets. If the business environment does not improve over the next two years, AIG could easily default. I imagine that the government would be first in line for assets if they do, but I really don't know.

 

[mshan]

Risky, if you don't have free capital to deploy right now (?)

There is apparently a lot of smart money waiting on the sidelines to swoop in and pick up long term bargains, but no one wants to be first, then later get diluted or wiped when the next series of writedowns and new equity issuance occurs. Everyone is probably saying, Fed / Treasury, you go first and put in a fundamental bottom, then we will follow your lead.

 

[frostedflakes]

Originally posted by: Engineer

Originally posted by: Slew Foot
I bought some losing lottery tickets, I want the government to bail me out.

I lost some money in the stock market last year and really, really need a bailout!!!

But are you Too Big to Fail? ? If not, then forget about it.

 

[halik]

Originally posted by: senseamp

Originally posted by: LegendKiller

Originally posted by: senseamp
Short the dollar long term, is all one can do about this. This Fed has demonstrated that money is worthless to it, it will give it out hand over fist. If it's worthless to the Fed, it's certainly worth less to me.

Wrong answer. The dollar was only falling the way it was because nobody thought the rest of the world was in trouble.

Oopps...

That is why I said long term. If there are countries in the rest of the world who are socializing their losses by printing money and handing it out, I would be short their currency too.

Interesting how the dollar has been getting stronger (notice crude oil coming down?) despite the fact that "FED is making worthless".

 

[senseamp]

Originally posted by: halik

Originally posted by: senseamp
$85Billion loan to a near worthless company that insured toxic mortgage securities against default.

So you have no idea what you're talking about then, huh? They have ~1 TRILLION of assets... fed just got em for cents on the dollar

How many liabilities do they have? Since you think you have an idea of what you are talking about, maybe you'll inform us.

 

[kranky]

Originally posted by: senseamp

Originally posted by: Skoorb

Originally posted by: senseamp
Do you know what kind of crap they insured? Insurance companies get wiped out by bad bets. Why should they be allowed to make bets with taxpayer money?

Because they're too big to fail, letting them die worse than helping, etc. you know the talking points

Yep, welcome to the United Socialist States of America.

I can hardly believe what we're seeing. That's exactly what is going on. There's certainly little reason for giant corporations to be prudent any more - just build up such a complex web of transactions that nobody understands, and they are too afraid to let it fail.

I would surely feel a lot better about this if the executives who raked in millions while undermining things would have to return all that money. What was done is little removed from a pyramid scheme. Keep the transactions flowing while things are doing well while collecting massive bonuses, and when the inevitable correction comes, let the shareholders take it on the chin.

 

[jpeyton]

Exactly, AIG had a ton of valuable assets, but they can't just unload them at a moment's notice. Unfortunately, their ratings downgrade yesterday meant that the clock was ticking to secure a huge loan to keep them afloat until they could sell those assets.

AIG looked to The Fed for that loan. No go.

They looked to JPMorgan/BofA. No go.

They were on the brink of going under, The Fed saw an opportunity in AIG's moment of desperation and seized it.

This is an enormous transfer of wealth. Make no mistake, even in the most dire of times (or especially in the most dire times), the rich and ruthless get even richer.

 

[senseamp]

Originally posted by: halik

Originally posted by: senseamp

Originally posted by: LegendKiller

Originally posted by: senseamp
Short the dollar long term, is all one can do about this. This Fed has demonstrated that money is worthless to it, it will give it out hand over fist. If it's worthless to the Fed, it's certainly worth less to me.

Wrong answer. The dollar was only falling the way it was because nobody thought the rest of the world was in trouble.

Oopps...

That is why I said long term. If there are countries in the rest of the world who are socializing their losses by printing money and handing it out, I would be short their currency too.

Interesting how the dollar has been getting stronger (notice crude oil coming down?) despite the fact that "FED is making worthless".

Bear market rally in the dollar. Fundamentals are catastrophic for the dollar. Enormous twin deficits, out of control Federal Reserve printing press. You name it, the dollar is playing Russian Roulette with a loaded gun.

 

[nergee]

Phrase of 2008:

"Too big to fail."

 

[NoStateofMind]

Originally posted by: nergee
Phrase of 2008:

"Too big to fail."

No shit.

 

[Engineer]

Originally posted by: frostedflakes

Originally posted by: Engineer

Originally posted by: Slew Foot
I bought some losing lottery tickets, I want the government to bail me out.

I lost some money in the stock market last year and really, really need a bailout!!!

But are you Too Big to Fail? ? If not, then forget about it.

Damn, I'm 50 pounds smaller now than I was 7 months ago. I guess I'm not big enough now!!!

 

[halik]

Originally posted by: senseamp

Originally posted by: halik

Originally posted by: senseamp
$85Billion loan to a near worthless company that insured toxic mortgage securities against default.

So you have no idea what you're talking about then, huh? They have ~1 TRILLION of assets... fed just got em for cents on the dollar

How many liabilities do they have? Since you think you have an idea of what you are talking about, maybe you'll inform us.

Current liabilities hover at 300B, with current ratio of 2.355 as of the latest statement. That 85B is a bridge loan - that is the FED is getting 80% of the company for taking on AIG default risk with new management.

You're acting as if they just cut them 80B check and left.

 

[Engineer]

Originally posted by: kranky
Keep the transactions flowing while things are doing well while collecting massive bonuses, and when the inevitable correction comes, let the shareholders and taxpayers take it on the chin.

Fixed.

 

[kranky]

Originally posted by: Engineer

Originally posted by: kranky
Keep the transactions flowing while things are doing well while collecting massive bonuses, and when the inevitable correction comes, let the shareholders and taxpayers take it on the chin.

Fixed.

Agreed.

 

[The-Noid]

Feds could only take on 79.9%. One of the investment companies I invest in owns swap contracts written by AIG, anything over 80% ownership by a single counterparty is considered technical default of the company. This would make all of the contracts exercisable, thus eliminating all of the good the Fed has done to calm world financial markets.

The Feds would have loved to bankrupt the capital base, could they have. Make no mistake this is not a bailout, nor was BSC or FNM, FRE, these are nice funerals. If you are an equity holder (owner) your investment is worthless.

The worldwide financial liquidity picture is in massive jeopardy, do not blame only our fed. Without our fed injecting money worldwide the ECB has printed 400,000,000,000E in the last 2 quarters and is taking on even lower quality paper than our fed.

The worlds financial system is in taters, it is not just the USA.

 

[DrewSG3]

So by next year, will my dollar be worth less than a mexican peso?

 

[Kuragami]

Originally posted by: miketheidiot

Originally posted by: gevorg
This 85 Billion is nothing, won't change anything, might just as well save a major "established" insurance company for better or worse.

If you want to worry about a bailouts, checkout Freddie Mac and Fannie Mae. Their debts are in TRILLIONS! Guaranteed to devalue the dollar.

their assets are also in the trillions

Correct.

This is why I would love to hear why they needed to be given billions of dollars. The Fed stepped in and became the backer essentially guaranteeing their position.

Let me get this straight cause you know I'm not the chairman of the Fed and am Dumb(tm).

I take a loan from the bank to buy a house I can't afford at a low interest rate for say 500,000 on a new home. After a few years my rate at least doubles and I can't afford to pay so I loose the house to the bank that I'm still on the hook for (hello loss of assets and bankruptcy) and lets say the house is devalued to 300.000 due to tons of people joining my boat to the dog house. Now the bank is on the hook for 200,000. That is unless the construction company took a loan out from the bank to pay for the cost of building the house in the first place. Did I forget to mention they simply created that money from thin air as they are allowed to do. Thank you fractional banking system hello revolving credit door.

But wait the Fed steps in and backs the bank and takes on all of their liabilities and assets.....
....
....
.... then gives them billions in cash.


You know even though I'm in Canada living in my igloo and driving to work in my 8hp (Huskie Powered) dog slay I still like to be lubed up before I get bent over.

 

[Kuragami]

P.S. If you think credit is being manipulated and money stolen you haven't seen anything yet and clearly have not been paying any attention to the PM market lately. I'm still predicting Gold and Silver crash in the next 4-8 weeks or so along with crude. Buy it up at that point if you can and think warmly of me a few months down the road.

 

[mshan]

CNBC Asia guest just said there could have been an $180 billion worldwide ripple if AIG had been allowed to fail (institutions that own AIG issued credit default swaps or insurance).

Other guest previously said market (Dow) could have dropped 1000 points tomorrow if AIG had been allowed to fail abruptly.

 

[Modelworks]

Think of it like this.
I have a $5 million home, but no cash.
I'm hungry, walk across the street to a diner and tell them I don't have any cash, but I tell the manager I own the house across the street.
Guess who is going hungry .

I want to eat so I stand on the corner holding a sign, home for sale, but no one has the money to buy it for the inflated price I want to sell it for, so I go to my moms house to eat.

 

[HeXploiT]

Originally posted by: senseamp
$85Billion loan to a near worthless company that insured toxic mortgage securities against default.

Now that makes sense.