somewhat seriously:
I'm sure some of you are still wondering whether or not AIG will get federal financial assistance, since we keep getting "yes" then "no" then "yes" then "no" reports from the press.
The answer is most assuredly YES. IF the govt wasn't going to help, they would have ended talks already.
The talks aren't taking so much time deciding IF they will help, rather HOW they will help.
Note how they forced the Congressional leaders' staff out of the room. None of these pols are equipped to understand the complexity of a deal like this without staff present. This is an extralegal railroading.
"Note how they forced the Congressional leaders' staff out of the room. None of these pols are equipped to understand the complexity of a deal like this without staff present. This is an extralegal railroading."
Imagine, the bush administration doing something outside the law. Shocking, I say, shocking.
I have been through all this before in Soviet Russia. What you have here is looting of the country by the elite. Soon they wire their money to Switzerland and retire in countries with little known names.
All this talk of Armageddon is simply a way to force the Fed to give out money. There would be no Armageddon, of course. We were promised Armageddon after Lehman BK, and all we got was a giant nothingburger. Great Depression saw companies go BK left and right, and we still pulled through just fine. I think the social safety net is much more developed today than in 1929, so why do we keep screaming 'end of the world'? Only to make it easier to loot you, gentlemen.
Under what legal authority does the Fed buy controlling interest in a failing private insurance company?
A quick scan of the Constitution fails to reveal the legal basis for this cozy little bail-out of the rich by the rich.
It's starting to look to me like we, the Chinese and the Russians are all weaving our way towards a very similar form of gorvernment, the complete merger of corporate and government interests.
Fascism on the march in the 21st century! Who would have thought?
Ohhh and btw, AIG is not a US company, 80% of their business is outside. So why is US populace bailing them out? Or if it is such a sweet deal, why doesn't ECB ask for a piece of the action?
AIG has liabilities far in excess of its assets. The Fed is buying the assets and getting the liabilities. Why not let AIG go to zero and just deal with the liabilities? Isn't that 85 big ones down the hole?
rationaljeff writes:
I feel like we are talking about Monopoly money now.
We ARE talking about monopoly money. The Federal Reserve System is a government sanctioned bank monopoly. No one else can issue currency.
Here is a question: if you had a choice between Federal Reserve Notes and a private bank that had audited gold-backed and convertible currency, which would you choose? But, the government forbids it, there can be no other currency that FRNs. Monopoly money, and backed by the same thing as monopoly money -- nothing.
Missed info, thank you for that. You clarified some of my thoughts. I agree with you. Let's take our chances with an AIG failure and see what happens. We KNOW what happens in the current situation. As you say, the elite is looting the country, and we will be left with so much debt there will never be any money left for anything graceful in public life again.
NYT: If the Fed takes a controlling stake, it is likely that it would want to replace A.I.G.s board as well as its chief executive and chairman, Robert B. Willumstad.
Veerrrry interesting. There's no time for a shareholder vote. The CEO and board are toast after the deal.
What's their incentive to do the deal? and if they're vindictive, the vote for bankruptcy.
"But with the prospect of a giant bankruptcy looming one with unpredictable consequences for the world financial system the Fed abandoned precedent and agreed to let the money flow."
Almost every precedent was for letting money flow. It was Lehman not getting bailed that caused the shock. General Motors next....
What does anyone expect? It's either bail-out these financials with huge counterparty risk or send the economy into possible oblivion. I don't want the latter, but I want something in return for the former. Like I want a financial corporation tax of 90% to pay for re-industrializing the U.S.
ac writes:
Unfortunately for all of us Bagehot was right.
And we've dug ourselves into it so deep the only thing we have left is to keep on digging.
Yeah, exactly.
Two years ago, when the extreme bubblehead doom mongers were predicting total financial meltdown, I was firmly in CR's camp. I thought the market would clean up the Wamu/Countrywide/IndyMac/DSL mess, house prices would fall, there would be a recession and things would be OK.
But now, I think this is a really big deal. We are absolutely digging the hole deeper. It's kind of like the UK after WWII, until the '80s.
The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system[1] composed of (1) the presidentially appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors; (4) numerous private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils. As of February 1, 2006, Ben Bernanke serves as the Chairman of the Board of Governors of the Federal Reserve System.
This is wrong in every sense of the word. Fire staff, cut bonuses, retrieve back pay. If any of these DB's get .01 for the harm they've wrought it will be a mortal sin.
When do I get my bail out? I'm too big to fail. I've got a liquidity problem. My income is crucial to the survival of the economy.
The social safety net is going to suck once all the bailouts are over there will be no resources left. What do you think your social security payments will be worth in 2012 dollars? A hill of beans? Maybe a bowl of beans...
Veerrrry interesting. There's no time for a shareholder vote. The CEO and board are toast after the deal.
So do the CEO and board have to run for election with the US taxpayer? Grrr. And the salaries? None of those puffed up golden parachutes for these guys. Not on my dime thank you.
DPP is right we don't own AIG. The Federal Reserve System does. Who owns the Fed --it ain't the taxpayer. If anything The Fed owns us. I repeat who owns the Fed?
Imagine, the bush administration doing something outside the law. Shocking, I say, shocking.
For the umpteenth time, the Federal Reserve is not part of the Executive Branch.
Political comments are stunningly boring, and that is when they come from people who actually know what they are talking about...
Re: Is this legal?
If the Bear Stearns deal was legal, then this surely is. Our "independent" central bank has extremely broad authority, and unlimited capacity, when it comes to lending dollars.
This is insanity - can Paulson be impeached? Crony communism gone wild. Putin's new Soviet Union is more open and honest than we are now. Is Paulson on performance-diminishing drugs? I heard a radio report today where the commentator was lionizing him. Absolutely incredible and disgusting.
Give us all your money or your economy will collapse.
Give us all your money, or many world economies will collapse.
My money is that was the real 'money quote' that crossed the bridge behind those curtains last night.
So the Fed did the nasty with AIG. How many people on the street of those other countries (that just got their economies saved) are going to think better of us now ?
How many would have thought worse of us if their economies had crashed ?
What's done is done. What does this mean really? It means that - for now - the counterparties to AIG on Wall Street get paid.
What is the size of AIG's true liabilites / losses here?
Does AIG sell off its valuable business units and pay off the Fed?
Does the Fed have any guarantees to collect this amount?
How is the Fed's balance sheet looking?
From the NY Time article,"Attending the meeting on the Capitol Hill were Democratic Senate leaders that included Charles E. Schumer of New York, Richard Durbin of Illinois, Christopher J. Dodd of Connecticut and Kent Conrad of North Dakota A contingent of Republicans was led by Mitch McConnell of Kentucky, the minority leader, and included Richard Shelby of Alabama, John Kyl of Arizona and Judd Gregg of New Hampshire. House leaders included John Boehner of Ohio, the Republican leader; Spencer Bachus, Republican of Alabama; and Barney Frank, Democrat of Massachusetts. Members of the leaders staffs were asked to leave the meeting shortly after it began."
This meeting was held by Paulson, who is indeed a member of the bush administration.
This is a gift from Bush & Co. to all of its well heeled financial supporters at hedge funds and banks to save them from AIG's failure as an unregulated counterparty in credit default swaps. We would not be here today if appropriate regulation and limits had been applied to these financial "weapons of mass destruction."
Hank Greenberg, a Repug loyalist, was on CNBC today telling Maria what a national treasure AIG was and that it cannot be allowed to fail. I think he meant HIS national treasure. All it's costing the rest of us is $85 billion.
If the Bear Stearns deal was legal, then this surely is. Our "independent" central bank has extremely broad authority, and unlimited capacity, when it comes to lending dollars.
This is totally different than Bear (which was actually a loan to JP Morgan). This is a forced ownership stake in an ongoing firm.
I don't think it is that bad. The only reason FED want 80% is to punish the shareholders and control the liquidation process. I have no doubt the company will be sold piece by piece in the next year or two.
Nemo, the Bear Stearns deal was totally illegal. The fed has the authority to LEND money. The bear deal was not a loan though. Rather, it was a GUARANTEE. A crucial distinction.
Don't forget to let your Congress person know that they need to vote for this (from Marketwatch):
GAITHERSBURG, Md.,, Sept 16, 2008 /PRNewswire-USNewswire via COMTEX/ -- Bipartisan legislation would reauthorize downpayment assistance
Ann Ashburn, President of AmeriDream, issued the following statement today after the House Financial Services Committee adopted H.R. 6694, legislation designed to reauthorize and reform downpayment assistance programs that the Bush Administration banned in July.
"Today's committee vote was a positive step toward preserving downpayment assistance, but our work is far from over," said Ashburn. "Now more than ever, members of Congress need to know that Americans are watching their vote on H.R. 6694. I encourage members of the public to tell their representatives in the House and the U.S. Senate that a vote for H.R. 6694 is a vote for the next generation of homeowners."
H.R. 6694 would reinstate FHA seller downpayment assistance for persons with certain credit scores. Learn more about H.R. 6694 by visiting http://www.supporthomeownership.com/.
There is no plan. There has been no thought given to what comes next. These boys are just making it up and hoping to get through the next couple months or least weeks.
Meanwhile the predators are watching with bright shiny eyes. The shepards are banging each other by the fire but the flock has been left unattended.
Protecting sheeple is a job. One that is/was honorable. One that was the main reason for a gov existing.
This is how it's supposed to work. When I introduced the Commodity Futures Modernization Act in the Senate in 2001, it guaranteed that derivatives would not be regulated. That was the whole point. Since then, AIG and everyone else has had a party with derivatives.
Now that it's time to pay the piper, AIG goes to see Uncle Sam.
Regulation of derivatives would have caused huge problems for our financial system, and UBS would never have hired me.
I've made a bundle, my clients are getting bailed out, and the system is saved! Free Markets!
This is HIGHLY ILLEGAL. The Fed is supposed to backstop US banks . . . not private mostly foreign entities. If this goes through, there is no need for the Fed to lower interest rates. They can just loan directly to the private companies in trouble.
All of this will have some very bad future implications. Remember, the mess we are in now is b/c Easy Al' wanted to help prevent or get us out of the '01 recession. IF we get out of this one . . . heaven help us for what's coming down the pike.
WASHINGTON The Internal Revenue Service announced today that it will begin sending more than 130 million economic stimulus payments starting October 7. Stimulus payments of $5000 per taxpayer will be combined with $500 in gas stamps, an iTunes gift card valued at $100, and a Ford.
H.R. 6694 would reinstate FHA seller downpayment assistance for persons with certain credit scores.
Have to throw something to the little guy, if he's got the right credit score. That means no protesting by withholding those insurance premiums or CC payments.
"WASHINGTON The Internal Revenue Service announced today that it will begin sending more than 130 million economic stimulus payments starting October 7. Stimulus payments of $5000 per taxpayer will be combined with $500 in gas stamps, an iTunes gift card valued at $100, and a Ford."
The funny thing is, this is only the capital that they need right now to stay afloat. Wait till they need more. Now that we own a major stake in this puppy, guess what will happen then?
This is totally different than Bear (which was actually a loan to JP Morgan). This is a forced ownership stake in an ongoing firm.
It was a 10-year un-callable "loan" at extremely low interest. Which is to say, not really a loan at all.
This "forced ownership stake" is arguably not really a loan, either. We will have to see the details.
Gordon Gecko --
This meeting was held by Paulson, who is indeed a member of the bush administration.
And the alleged violation of the law was... ?
Paulson is acting as messenger and facilitator. The Treasury has no authority here unless the Congress passes some new legislation.
I assume the goal here is to hand off this nightmare to the Treasury, because keeping it with the Fed sets a very dangerous precedent. Not to mention they don't really have the competence in-house to manage the assets... But again, any such hand-off would require Congressional authorization.
If you believe "containing systemic risk" is part of the Fed's mission (and that they are not just a massive conspiracy to transfer all wealth to the banks), then you have to admit they have been dealt a very difficult hand here.
I want to see the terms of this "loan" before passing judgment.
AIG getting loan. Govt wipes equity with warrants. There will be a rally on this, but unlimited loans didn't help Lehman so stay tuned...
Big rally tomorrow. QLD the 2x QQQQ may be good trading vehicle.
This doesn't fix the underlying consumer problem with credit/housing.
CDS may trade a lot less as banks trust each other less and prime brokers may get tighter with terms. Where are dealers going to make money?
The same shit that got AIG pooched is in Citi's book and SIVs. So they are next in my guess. Is the Fed ready with another 100bn for them?
Consumer credit is going to be harder to get and after this rally and I will be buying SKF again hopefully around 100.
The way I read it, 85 Billion is a "load", not equity injection. So AIG is paying 80% of stock for the privilege of getting a loan, not the for the loan itself. In other words, 0 $ paid for the 80% share.
If it's liquidity, this is probably a good deal for the US and taxpayers. It will save us money in the long term as less institutions fail beacuse of counterparty colapse. It's the Fed's role is to provide liquidity in times of crisis.
If this is about solvancy... well... the taxpayer is taking undo risks and the Fed is over-steping it's bounds.
The funny thing is, this is only the capital that they need right now to stay afloat. Wait till they need more. Now that we own a major stake in this puppy, guess what will happen then?
I always thought the dealer gave you the first hit free, then started charging out the wazoo. Paying $80B to become an addict is a whole new level of hutzpah.
Angry Renter, I put this up on the previous post..."Is this a problem", serious question:
NEW YORK (MarketWatch) -- One of the first and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck."
Primary Fund RFIXX a $64 billion fund managed by money market fund inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero
"I don't think it is that bad. The only reason FED want 80% is to punish the shareholders and control the liquidation process. I have no doubt the company will be sold piece by piece in the next year or two?"
It's too convenient to forget the liabilities, which far exceed the assets.
Comraade Nemo is correct. THE FRB own this shit pile. Of course they pay for it by printing TRN's ($'s) so it's not like you ain't taking it up the bung hole.
AIG, like the GSEs, was a widely owned stock. These kind of wipeouts are hitting institutions and pensions as hard as regular investors. The portfolio pain alone will kill the Street before long.
This is in insanity. When is the FED and the goobermint allow these companies to fail and let the market take its course?
By propping up all the c&*p, it delays the inevitable, which will be much worse.
I am so disgusted by this. Why does the goobermint allow this to continue? I for one do not like the idea that my taxes are gonna go up to pay for this nonsense when all is said and done.
Give us all your money or your economy will collapse.
It's the ultimate swindle and our politicians are falling for it hook, line, and sinker.
I call bullshit. Not a single one of the politicians signing off on this need to be conned; their job may be to con you that they were "forced" into it, but they are all in on the act. They are just doing their job, it's why they get (a tiny percentage of) the big bucks.
This about preventing sudden collapse of the system. Hey, they day is coming fast. Fed and all these crooks has power as longs as FCB buy our junk papers. The problem is we are scaring the FCB whose life will on line when they loose their countries asset on US paper. I hope FCB either they wake up or die with us.
If I were WM, WB, GM, F or anyone else needing money, now, before the elections, is the time to make the threat of BK. After November 7th, the FED/Treasury won't care.
I believe the 80% stake is only to ensure the Fed (taxpayer) can reap the upside in the (unlikely?) event AIG can be nursed back to health. I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind.
The Fed will get its money back before the existing shareholders get jack, I suspect. Unclear about the bondholders; I am not sure where the Fed can insert itself into the capital structure, exactly.
But I bet they do it in the most conservative way possible. They have to think that exposing the central bank to credit risk is very, very distasteful.
Someone last night posted a link to Irving Fischer. I am reposting it as it was "Tanta" quality. We are looking at deflation. The selling apples on the street kind.
This is about solvency and the losses they are taking on their derivative investments. The money they will need to address their derivatives portfolios will be a dynamic thing. This is just the beginning.
I'll be calling my house rep and my senators tomorrow AM on the way to work.
I will be asking everyone who picks up how the federal reserve has the authority to do this, over a company they have no authority, spending taxpayer dollars they have no right to spend.
I'll also be asking if I, a taxpayer, have any representation left in government.
(202) 224-3121
Switchboard - Congress
(202) 224-3121
Someone (I think JD on a previous thread) wondered cynically if Lehman was the lone firm allowed to go BK because their management were Democratic supporters.
I had to check. Not a single member of Lehman's Executive Committee has, according to Open Secrets, ever given a dollar to any politician. The odd thing is, a couple of the names are pretty ordinary, like there might be more than one guy in the world with that name.
It's too convenient to forget the liabilities, which far exceed the assets.
Maybe, just maybe, we should assign numerical values to a crashed economy and one that is limping along. Then include those values into the calculus you mention above.
Nemo, we need more details, but I think you have right. This is a loan. AIG assets will be sold over time. The Fed will be repaid - probably after the bondholders - and if there is anything left of the Company, the Fed has warrants for 80% (to dilute the common).
For AIG shareholders, this is pretty close to a complete wipeout. To other parties - especially counterparties and debt holders - this is good news. But we need to see the details to be sure.
I believe the 80% stake is only to ensure the Fed (taxpayer) can reap the upside in the (unlikely?) event AIG can be nursed back to health. I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind.
The Fed will get its money back before the existing shareholders get jack, I suspect. Unclear about the bondholders; I am not sure where the Fed can insert itself into the capital structure, exactly.
But I bet they do it in the most conservative way possible. They have to think that exposing the central bank to credit risk is very, very distasteful.
The problem I have with the Federal Reserve doing anything is that I look around me and see what they've done so far.
Why should I think all of a sudden that everything the Fed does will come up roses when everything they've done so far has lead to where we are now?
It's like saying all GWB needs is 4 more years to make everything right.
Do you see why that would be a bit hard for someone to swallow?
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year. ...
I believe the 80% stake is only to ensure the Fed (taxpayer) can reap the upside in the (unlikely?) event AIG can be nursed back to health. I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind.
I agree with this. But even FED simply plan to run the company off and liquidate everything (over some time), can't they engineer it so that they garantee they get paid first?
"If you think the repubs & the MORON Administration had nothing to do with this, I've got a Bridge Loan to sell you."
LOL! Like greed is strictly a GOP character trait. I don't recall the DEMs stepping in the way to slow runaway household appreciation and HELOC induced megaspending. Maybe I missed it.
So what happens if despite the loan AIG is still insolvent and the Fed exercises the warrants? Is the Fed really going to take responsibility for AIG's liabilities?
I wonder if you can convince the bank that you haven't really defaulted on your mortgage, but you're just suffering from a "lack of liquidity". Tell them you've got the Bank of Bernanke on the other line for a nice bailout.
CSC if you have AT&T DSL (as I do) you'd better read that new contract they just sent changing the terms. Just your handle alone would be reason enough for them to dump you and throw away all your e-mails if they wanted to. It's a scary document. They say they would never cancel someone just for advocating political positions, but (and they say this all in one sentence) they can cancel you if you do ANYTHING the least bit illegal, like copying something from another website.
I feel like I am in the middle of a game I thought I understood, knew the rules, how to keep score. BUt now. all of a sudden I have the sense of complete confusion, and what they are saying sounds reasonable in a way, but feels really really wrong. Just somehow incongruous with what I have thought was playing along with the rules.
Bottom line...this simple american bozo on the bus has decreased confidence in not only the markets, but in the economy being something that is going to work with and for my interests. Exponentially worse.
I am not saying it is going to come up roses. I wasn't kidding about "a bridge paved with good intentions".
But I do not think they have the destruction of their balance sheet / their credibility / our currency as an explicit goal.
G --
But even FED simply plan to run the company off and liquidate everything (over some time), can't they engineer it so that they garantee they get paid first?
Ahead of the shareholders, including the preferred shareholders: yes. Ahead of some or all of the creditors: I do not know.
That is what I meant by wondering where they can insert themselves in the capital structure. I have seen at least one report that claims their bondholders will take a haircut. I have no idea whether that is true or even possible... Holders of the debt presumably have certain legal protections, which I thought could only be nullified in bankruptcy. But who knows.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firms assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
Thanks for being the voice of reason. While I'm not happy about the state we're in, if (and everything is preliminary at this point), it sounds like the FED has put up enough cash to see to an orderly unwinding of AIG. I'm guessing that the common goes to 0, just like you. AH AIG was down 30%; and for all of us with a short term memory, bid on FNM is now $0.48.
Now should the FED do it? Don't know. But is it a bailout -- probably no more (from a common perspective) that FNM was.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firms assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
I see Krugman has finally woken up to the Treasury fails to deliver, fails to receive angle that was getting play here late Sunday night. I think it was here - another poster noted the trend line at about 700%.
Phil Gramm writes:
This is how it's supposed to work. When I introduced the Commodity Futures Modernization Act in the Senate in 2001, it guaranteed that derivatives would not be regulated. That was the whole point. Since then, AIG and everyone else has had a party with derivatives.
This is where the problem started Gramm Bushco etc.
This was authorized by the US Congress and signed into law by Bush.
They all live on the cheating side of town.
BTW Gramm still strongly influences
one of the candidates
Whoever made the point that AIG had many months to sell assets before hitting the skids was right on.
That's the deal breaker for me (besides the moral hazard issue).
The AIG execs probably have a million times more wealth than the combined wealth of everyone on this blog, but they didn't clean this up (or try to clean it up) months ago?
I guess the ultimate justice is that they will end up with Ebbers in Oakdale.
I'm really hesitant to catch up on the news of the day here. Pretty good call on Barclay's though, eh?
So possibly AIG and Fed related (isn't everything?):
Liquidnet and its luxurious dark pools. Would someone familiar with this animal please make it simple for the rest of us. It really seems like the ready escape hatch for all those nasty people that are suddenly going to be regulated out of their fortunes.
Anonymous global trading. That's the bottom line, right? They filed for their ipo, but it doesn't seem to have happened yet. If anyone has details, would love to hear more.
And its not the only one out there, by the way.
The equity is given the 80% haircut and we see what happens.
I'm not sure how this is different from bankruptcy, but the bondholders will make out better.
The rational way to handle this, given what they have done is to sell everything but the capital markets group and the mortgage insurer. As soon as possible.
With the loan, they get their credit rating back and therefore don't have to post collateral.
I think the loan gets paid back. And sooner rather then later.
This is significantly different then the typical investment bank, because they are a huge, profitable insurance company with a crappy capital markets unit and a little mortgage insurance unit.
I had expected bankruptcy, but this will end up being cheaper.
This is fundamentally different then F&F because this company will get chopped up quickly into the good and bad pieces and the residue will have a pretty big cushion of capital. The decent businesses will sell quickly for a good price.
Dow component with the AMERICAN in its name.
This is not that different then what I envisioned in bankruptcy, but should be cheaper and less traumatic.
American Airlines is the only legacy carrier that hasn't declared BK. BoA will not be allowed to fail either.
Obviously, absolutely no one here will either agree with or believe a word I say.
24 months? Not really a "bridge" loan. This is a huge draw on the Fed - 10% of assets, and they can't count on getting out until the 2010 election. Dig that interest rate, though. 15% right now!
You guys really seem to be cheerleading for financial collapse here. I know we all hate the Bush administration (myself included), but lets be realistic.
This is actually a pretty good deal for the Fed. AIG is in a liquidity crisis, not a capital crisis. This loan allows them to post collateral and stay out of bankruptcy.
Once the CDS and RMBS securities owned run-off, the intrinsic value of the insurance operations will exceed losses. This company had $78b in equity at 6/30 even after taking about $35b in losses on CDS and RMBS positions.
I honestly believe that the Fed made us money tonight. I've been wrong more often than not before, however.
The comment about the loan being collateralized by all of AIGs assets, and the assets of its subsidiaries suggests to me that they are trying to wedge themselves in above senior unsecured creditors. Basically, it sounds like the Fed is trying to take over the role of the bankruptcy court.
What's bizarre is the delegation of lawmakers in the dog and pony show has a Republican majority. The Democrats have had a majority in both houses since '06, did Paulson/Bernanke not get the memo?
When 85 billion can be put up to acquire a failing company without any transparency or deliberation of the legislative branch then I think we have lost a bit of democracy.
What if the loan cannot be paid back, as the assets become next to worthless?
This is very hard to understand and the ramifications seem unpredictable. Who understands credit default swaps?
"As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
What complete and utter bullshit. Tell me where in the hell the Fed is getting 80 billion bucks to buy 80% of a private company if they don't get any funding from congress?
Quasi-private? Part of government but not? Not answerable? Blah blah blah, what a con job.
"When 85 billion can be put up to acquire a failing company without any transparency or deliberation of the legislative branch then I think we have lost a bit of democracy. "
Lawn Grass, you evidently didn't get the memo. There hasn't been any democracy in this country for a very long time.
How about CR host an HL Mencken or Devil's Dictionary alternative? Could host as a competition like Gawker did a month or so back.
Extra points for insight and snide attitude.
For instance:
"Unwind" - terminating a market position, generally following a tactical investment thesis of "OMFG, sweet jesus has it come to this?"
"Risk management" - a practice of ignoring probability of losing colossal amounts of shareholder value until someone finds out what the hell you're up to.
But more seriously, how does Sec13(3) apply here? Could arguably meet the tests of unusual and exigent circumstance, albeit not according to most of the commentators here... but the legal pivot is presumably the "adequate" credit accommodations line. According to whom? The party in distress or the Fed?? I don't get it.
Viz:
Discounts for Individuals, Partnerships, and Corporations
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.
It applies to individuals too. Why? How? Precedent??
Have to say the terms of the loan make me feel a bit better about this, all in all a better deal for taxpayers that BSC. Still not crazy about it on legal/constitutional grounds, but on a dollars and sense level kind of looks like the least worst outcome.
"So which airline, car manufacturer, home builder, or steel maker gets the next bailout?"
Dear Comrade, are you not knowing about $25 billions funding for cars that are green? They want more $25 billions but because maybe of AIG, Congressman don't pay...... Bwaahahahah.
This is just like the Housing bill - government gets 50% of your home if you take advantage of their "help" - pretty quick it's going to be real clear exactly how much of everything the government has a "stake" in - I can just imagine the figure they'll come back with on Fannie and Freddie - almost better off letting them go down.
Is this good news?
Why am I buying an insurance company?
I didn't authorize this!
last ?
Let them file bankruptcy, we need this to be over with as soon as possible.
tax payer money at risk agai
Is this good news?
Only if they complete the financial nationalization trifecta by "bailing out" either BAC or C.
somewhat seriously:
I'm sure some of you are still wondering whether or not AIG will get federal financial assistance, since we keep getting "yes" then "no" then "yes" then "no" reports from the press.
The answer is most assuredly YES. IF the govt wasn't going to help, they would have ended talks already.
The talks aren't taking so much time deciding IF they will help, rather HOW they will help.
poor LEH, why not let them BK, its the american way
I feel like we are talking about Monopoly money now.
Is this even legal?
Note how they forced the Congressional leaders' staff out of the room. None of these pols are equipped to understand the complexity of a deal like this without staff present. This is an extralegal railroading.
Being a taxpayer/owner, does this mean I can offer myself some phat insurance policy?
Only $85B for all of AIG's liabilities.
Bargin.
that is about $32/share if my math. is correct.
cant afford to let them die, this was the best possible outcome.
"Note how they forced the Congressional leaders' staff out of the room. None of these pols are equipped to understand the complexity of a deal like this without staff present. This is an extralegal railroading."
Imagine, the bush administration doing something outside the law. Shocking, I say, shocking.
Even the Japanese didn't resort to this... One thing hasn't really changed over the last year: no one really knows what's happening.
This is an extralegal railroading.
Cheney, in the corner, cleaning a shotgun /clue
Unbelievable...
The fed now owns damaged homes
and wrecked vehicles....
Looks like finally the Fed realised what an AIG bankrupcy would mean to the financial system.
If this is'nt the death of capitalism, then what is.....
LOL
Now it IS a national treasure.
well put YTL
Unfortunately for all of us Bagehot was right.
And we've dug ourselves into it so deep the only thing we have left is to keep on digging.
It's all we know how to do.
I have been through all this before in Soviet Russia. What you have here is looting of the country by the elite. Soon they wire their money to Switzerland and retire in countries with little known names.
All this talk of Armageddon is simply a way to force the Fed to give out money. There would be no Armageddon, of course. We were promised Armageddon after Lehman BK, and all we got was a giant nothingburger. Great Depression saw companies go BK left and right, and we still pulled through just fine. I think the social safety net is much more developed today than in 1929, so why do we keep screaming 'end of the world'? Only to make it easier to loot you, gentlemen.
Pour a forty on the curb for non-corporate-statism in the United States.
Who is up for a game of kick the can.
So, hunting begins on WaMu and Wachovia tomorrow?
How long til the Revolution?
wall st welfare office now open 24/7
In Soviet Russia, you bail the Oligarchs out.
...Wait...
A federal insurance company regulated by the states?
Under what legal authority does the Fed buy controlling interest in a failing private insurance company?
A quick scan of the Constitution fails to reveal the legal basis for this cozy little bail-out of the rich by the rich.
It's starting to look to me like we, the Chinese and the Russians are all weaving our way towards a very similar form of gorvernment, the complete merger of corporate and government interests.
Fascism on the march in the 21st century! Who would have thought?
They should put Bazooka Hank in control of the Social Security and medicare problems, then we would see progress.
cant afford to let them die
Why? Let's try it out and see.
Ohhh and btw, AIG is not a US company, 80% of their business is outside. So why is US populace bailing them out? Or if it is such a sweet deal, why doesn't ECB ask for a piece of the action?
The stench is spreading beyond the barn.
Do I have this right?
AIG has liabilities far in excess of its assets. The Fed is buying the assets and getting the liabilities. Why not let AIG go to zero and just deal with the liabilities? Isn't that 85 big ones down the hole?
Comrades,
Erm...So now state insurance regulators are regulating the FRB?
BZAP!
OW!
Damn, forgot I just changed the batteries.
Nostrovia,
rationaljeff writes:
I feel like we are talking about Monopoly money now.
We ARE talking about monopoly money. The Federal Reserve System is a government sanctioned bank monopoly. No one else can issue currency.
Here is a question: if you had a choice between Federal Reserve Notes and a private bank that had audited gold-backed and convertible currency, which would you choose? But, the government forbids it, there can be no other currency that FRNs. Monopoly money, and backed by the same thing as monopoly money -- nothing.
"Fairfax writes:
cant afford to let them die, this was the best possible outcome."
You're wrong, Fairfax. You know it, but you just are in too deep to admit it.
I guess we are all homeowners and insurance policy holders now? Soon we will likely be owners of crappy GM/Ford cars as well as an airline or two.....
Missed info, thank you for that. You clarified some of my thoughts. I agree with you. Let's take our chances with an AIG failure and see what happens. We KNOW what happens in the current situation. As you say, the elite is looting the country, and we will be left with so much debt there will never be any money left for anything graceful in public life again.
Binko,
I think at least technically the Fed is a private company.
NYT: If the Fed takes a controlling stake, it is likely that it would want to replace A.I.G.s board as well as its chief executive and chairman, Robert B. Willumstad.
Veerrrry interesting. There's no time for a shareholder vote. The CEO and board are toast after the deal.
What's their incentive to do the deal? and if they're vindictive, the vote for bankruptcy.
All this talk of Armageddon is simply a way to force the Fed to give out money.
DING DING DING
This is extortion.
Give us all your money or your economy will collapse.
It's the ultimate swindle and our politicians are falling for it hook, line, and sinker.
"Now it IS a national treasure."
good one.
"But with the prospect of a giant bankruptcy looming one with unpredictable consequences for the world financial system the Fed abandoned precedent and agreed to let the money flow."
Almost every precedent was for letting money flow. It was Lehman not getting bailed that caused the shock. General Motors next....
Look on the bright sidefolks: the coolest part of the deal is that now the Fed emblem will be on the chest of the new Manchester United jerseys.
Why did CR not think this was likely?
What does anyone expect? It's either bail-out these financials with huge counterparty risk or send the economy into possible oblivion. I don't want the latter, but I want something in return for the former. Like I want a financial corporation tax of 90% to pay for re-industrializing the U.S.
FWIW, true story
met with a guy that has big bucks today, big big bucks. old guy, seen it all and then some. we like to talk the market, have for a long time.
his first words to me:
"i went all cash 5 minutes ago. i am done with the market. this is the beginning of the end of the u.s."
ac writes:
Unfortunately for all of us Bagehot was right.
And we've dug ourselves into it so deep the only thing we have left is to keep on digging.
Yeah, exactly.
Two years ago, when the extreme bubblehead doom mongers were predicting total financial meltdown, I was firmly in CR's camp. I thought the market would clean up the Wamu/Countrywide/IndyMac/DSL mess, house prices would fall, there would be a recession and things would be OK.
But now, I think this is a really big deal. We are absolutely digging the hole deeper. It's kind of like the UK after WWII, until the '80s.
I guess I understood with FNM/FRE...but AIG is a shareholder-owned company, right? Where's the precedent? Did the board approve this? WTF?
The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system[1] composed of (1) the presidentially appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors; (4) numerous private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils. As of February 1, 2006, Ben Bernanke serves as the Chairman of the Board of Governors of the Federal Reserve System.
Geithner has lost all my respect. He use to have a lot, then a little.
Now he is just another pigman crony.
Oh Yeah! Capitalism at its best...
This is wrong in every sense of the word. Fire staff, cut bonuses, retrieve back pay. If any of these DB's get .01 for the harm they've wrought it will be a mortal sin.
When do I get my bail out? I'm too big to fail. I've got a liquidity problem. My income is crucial to the survival of the economy.
Disgusting.
"80% of their business is outside."
It's all the CDS crap that doesn't trade on an exchange.
Who need enemies when we have bush, ben, hanky panky and all idiots in the congress. These people are traitors. They need to be treated accordingly.
The social safety net is going to suck once all the bailouts are over there will be no resources left. What do you think your social security payments will be worth in 2012 dollars? A hill of beans? Maybe a bowl of beans...
I guess I understood with FNM/FRE...but AIG is a shareholder-owned company, right?
So was fnm/fre. Their stock also 80% wiped out.
Thanks Missed Info -- hope it dawns on everyone before it's too late:
No commies
No capitalists
Just looters.
And a most important question:
How does one loot the looters?
Comrade ac,
"DING DING DING
This is extortion.
Give us all your money or your economy will collapse.
It's the ultimate swindle and our politicians are falling for it hook, line, and sinker."
We need more cow bells.
Nostrovia,
Veerrrry interesting. There's no time for a shareholder vote. The CEO and board are toast after the deal.
So do the CEO and board have to run for election with the US taxpayer? Grrr. And the salaries? None of those puffed up golden parachutes for these guys. Not on my dime thank you.
DPP is right we don't own AIG. The Federal Reserve System does. Who owns the Fed --it ain't the taxpayer. If anything The Fed owns us. I repeat who owns the Fed?
Gordon Gecko --
Imagine, the bush administration doing something outside the law. Shocking, I say, shocking.
For the umpteenth time, the Federal Reserve is not part of the Executive Branch.
Political comments are stunningly boring, and that is when they come from people who actually know what they are talking about...
Re: Is this legal?
If the Bear Stearns deal was legal, then this surely is. Our "independent" central bank has extremely broad authority, and unlimited capacity, when it comes to lending dollars.
"i went all cash 5 minutes ago. i am done with the market. this is the beginning of the end of the u.s."
Then he said $2 for a cup of coffee these days?! See this dime?!
Seriously, have they not learned anything from Fannie and Freddie? That whole operating as a pseudo-governmental, pseudo-private entity works so well!
Does this mean everyone gets free Health, life, auto, renter's, earthquake, fire, and homedebtor's insurance?
Where are my new policies?
I want mine, mine, mine, mine, I tell ya!
Where is it?
heil Bernanke
Can you weird tinfoilers keep it down please? Kudlow gave the deal a thumbs up.
Checking out the TV guide tonight - plenty of appropo show titles...
ER
Big Brother 10
Dirty Jobs
And the winner...
The Biggest Loser: Families
So do the CEO and board have to run for election with the US taxpayer?
Forget that for a second.
Why does the current board & CEO vote for this? They have no incentive, they might as well go to bankruptcy.
And they are the only ones with a vote.
YouTube - The Who - 2000-09-24 - Bargain
Bargai
This is insanity - can Paulson be impeached? Crony communism gone wild. Putin's new Soviet Union is more open and honest than we are now. Is Paulson on performance-diminishing drugs? I heard a radio report today where the commentator was lionizing him. Absolutely incredible and disgusting.
We need more cow bells.
If they give us cow bells all will be forgiven.
Especially if we have ponies to put them on.
WTF? This is outrageous. Ship em all to gitmo, bunch of financial terrorists blackmailing the US.
Was it Einstein who said insanity is doing the same thing over and over again and expecting different results?
ac | 09.16.08 - 8:28 pm |
Also the definition of a drunk.
They are doing it for the people. All the little herronvolk. Joe, the kids, Grandma.
Lighten up. Like its really going to change anyones lifestyles (that matters.)
JP, getting warm...
Give us all your money or your economy will collapse.
Give us all your money, or many world economies will collapse.
My money is that was the real 'money quote' that crossed the bridge behind those curtains last night.
So the Fed did the nasty with AIG. How many people on the street of those other countries (that just got their economies saved) are going to think better of us now ?
How many would have thought worse of us if their economies had crashed ?
I'm betting on 'none' and 'lots'.
What's done is done. What does this mean really? It means that - for now - the counterparties to AIG on Wall Street get paid.
What is the size of AIG's true liabilites / losses here?
Does AIG sell off its valuable business units and pay off the Fed?
Does the Fed have any guarantees to collect this amount?
How is the Fed's balance sheet looking?
So what is anyone gonna do about it?
(I guess the better question is, what can you do about it?)
I guess we know why they didn't cut rates today.
Get used to it:
http://media.argentina.indymedia.org/uploads/2005/01/communist_usa-flag.jpg
I take a frickin nap and wake up to the mother of all bailouts (for now.) WhoTF am I RIP VAN CAPITALISM?
If this is the uber bailout the futures sure are weak...I see the delayed quote on Bloomberg and nothing is up over 0.6%...
If memory serves, in 2007, America's household net worth was around $54 trillion. AIG has a $1 trillion dollar balance sheet.
The government now owns almost 2% of of the American household.
Weird.
BZZZ. Um, no, Putin's Russia is NOT more open and honest than we are now. But point well taken.
Damn, looks like Jas was right.
Is Lefty selling tinfoil hats and batteries, now?
From the NY Time article,"Attending the meeting on the Capitol Hill were Democratic Senate leaders that included Charles E. Schumer of New York, Richard Durbin of Illinois, Christopher J. Dodd of Connecticut and Kent Conrad of North Dakota A contingent of Republicans was led by Mitch McConnell of Kentucky, the minority leader, and included Richard Shelby of Alabama, John Kyl of Arizona and Judd Gregg of New Hampshire. House leaders included John Boehner of Ohio, the Republican leader; Spencer Bachus, Republican of Alabama; and Barney Frank, Democrat of Massachusetts. Members of the leaders staffs were asked to leave the meeting shortly after it began."
This meeting was held by Paulson, who is indeed a member of the bush administration.
Almost every precedent was for letting money flow. It was Lehman not getting bailed that caused the shock. General Motors next....
GM would have failed 3 years ago, if free markets still worked then.
Would be less to clean up now.
Damn, looks like Jas was right.
Welcome to JasWorld.
This is a gift from Bush & Co. to all of its well heeled financial supporters at hedge funds and banks to save them from AIG's failure as an unregulated counterparty in credit default swaps. We would not be here today if appropriate regulation and limits had been applied to these financial "weapons of mass destruction."
Hank Greenberg, a Repug loyalist, was on CNBC today telling Maria what a national treasure AIG was and that it cannot be allowed to fail. I think he meant HIS national treasure. All it's costing the rest of us is $85 billion.
What a crock!!
If the Bear Stearns deal was legal, then this surely is. Our "independent" central bank has extremely broad authority, and unlimited capacity, when it comes to lending dollars.
This is totally different than Bear (which was actually a loan to JP Morgan). This is a forced ownership stake in an ongoing firm.
Four legs good, two legs better.
Does this mean I have to return my refund check?
stsimons....you spelled it wrong. It's CROOK.
Jas was a doe-eyed optimist. We're going down in a ball of flames.
Any thoughts Alo?
Buying Merrill Lynch Several Days Before Bankruptcy.....$50 Billion
Buying AIG Several Hours Before Bankruptcy.....$86 Billion
Being Able To Fuck Up Completely, And Get Bailed Out By The CORRUPT U.S. Government.....PRICELESS!!
I don't think it is that bad. The only reason FED want 80% is to punish the shareholders and control the liquidation process. I have no doubt the company will be sold piece by piece in the next year or two.
can anybody validate my parking stub ?
If the Bear Stearns deal was legal
Nemo, the Bear Stearns deal was totally illegal. The fed has the authority to LEND money. The bear deal was not a loan though. Rather, it was a GUARANTEE. A crucial distinction.
That deal was a sham!
FNM/FRE were not shareholder companies...that was the charade, but they were the GSEs, remember? AIG is not (well, WAS not) a GSE.
They'll be mailing out those new stimulus checks come Dec. 1, can't forget a handout to the retailers.
Damn $85B that's about 6 months of good ole 'merican war fightin" money.
Comrades,
Well I for one am happy that our gov't sponsored cartel gets to print up (dilute) US TP...erm $'s to float AIG's bad debts.
Next time I go to Vegas and start getting upside down at the tables I'm gonna call B.S. Bernutty. I'll sign off on the cocktail napkin for the loan.
I'm so happy about this I could just shit.
Nostrovia,
AIG's market cap was $10B - why didn't the FED get 100% for its $80B loan?
Hey Everyone -
Don't forget to let your Congress person know that they need to vote for this (from Marketwatch):
GAITHERSBURG, Md.,, Sept 16, 2008 /PRNewswire-USNewswire via COMTEX/ -- Bipartisan legislation would reauthorize downpayment assistance
Ann Ashburn, President of AmeriDream, issued the following statement today after the House Financial Services Committee adopted H.R. 6694, legislation designed to reauthorize and reform downpayment assistance programs that the Bush Administration banned in July.
"Today's committee vote was a positive step toward preserving downpayment assistance, but our work is far from over," said Ashburn. "Now more than ever, members of Congress need to know that Americans are watching their vote on H.R. 6694. I encourage members of the public to tell their representatives in the House and the U.S. Senate that a vote for H.R. 6694 is a vote for the next generation of homeowners."
H.R. 6694 would reinstate FHA seller downpayment assistance for persons with certain credit scores. Learn more about H.R. 6694 by visiting http://www.supporthomeownership.com/.
This and recent news does beg the question: WTF?
Jesus wept.
There is no plan. There has been no thought given to what comes next. These boys are just making it up and hoping to get through the next couple months or least weeks.
Meanwhile the predators are watching with bright shiny eyes. The shepards are banging each other by the fire but the flock has been left unattended.
Protecting sheeple is a job. One that is/was honorable. One that was the main reason for a gov existing.
This is how it's supposed to work. When I introduced the Commodity Futures Modernization Act in the Senate in 2001, it guaranteed that derivatives would not be regulated. That was the whole point. Since then, AIG and everyone else has had a party with derivatives.
Now that it's time to pay the piper, AIG goes to see Uncle Sam.
Regulation of derivatives would have caused huge problems for our financial system, and UBS would never have hired me.
I've made a bundle, my clients are getting bailed out, and the system is saved! Free Markets!
I just wan to see when the karma catches-up with these b********.
This is HIGHLY ILLEGAL. The Fed is supposed to backstop US banks . . . not private mostly foreign entities. If this goes through, there is no need for the Fed to lower interest rates. They can just loan directly to the private companies in trouble.
All of this will have some very bad future implications. Remember, the mess we are in now is b/c Easy Al' wanted to help prevent or get us out of the '01 recession. IF we get out of this one . . . heaven help us for what's coming down the pike.
"This is a forced ownership stake in an ongoing firm."
Last I read, AIG was going to file BK. If anyone was forced, it was the taxpayer. Remember all the buyers lining up for LEH?
Well, at least I don't have to worry. My savings are all parked in a Money Market account.
They'll be mailing out those new stimulus checks come Dec. 1, can't forget a handout to the retailers.
Wall Street will get all the real wealth, and the US government will quite the mob by handing out worthless trash paper to shut people up.
And people will fall for it.
Lately all these threads are channelling Jas Jain.....
Noooooooo......
So which airline, car manufacturer, home builder, or steel maker gets the next bailout?
Or was this the "last" one?
LOL LOL LOL LOL LOL LOL LOL LOL LOL
LOL LOL LOL LOL LOL LOL LOL LOL LOL
LOL LOL LOL LOL LOL LOL LOL LOL LOL
LOL LOL LOL LOL LOL LOL LOL LOL LOL
LOL LOL LOL LOL LOL LOL LOL LOL LOL
Next year I am going to send you some czech crowns as charity...
Breaking:
WASHINGTON The Internal Revenue Service announced today that it will begin sending more than 130 million economic stimulus payments starting October 7. Stimulus payments of $5000 per taxpayer will be combined with $500 in gas stamps, an iTunes gift card valued at $100, and a Ford.
Sweet.
Bernanke to Willumstad:
"All your shares are belong to us."
to aid: "Put this dood on the next flight to the Gulagtanamo."
In my dreams...
Jas was a doe-eyed optimist. We're going down in a ball of flames
Do they still put chemicals in the weed to make peolple passive? That might explain the lack of public outrage.
"So which airline, car manufacturer, home builder, or steel maker gets the next bailout?"
Ford and GM are going to hold the entire state of Michigan hostage to get their bailout.
This is an outrage.
H.R. 6694 would reinstate FHA seller downpayment assistance for persons with certain credit scores.
Have to throw something to the little guy, if he's got the right credit score. That means no protesting by withholding those insurance premiums or CC payments.
WASHINGTON The Internal Revenue Service announced
Sign me up !
"WASHINGTON The Internal Revenue Service announced today that it will begin sending more than 130 million economic stimulus payments starting October 7. Stimulus payments of $5000 per taxpayer will be combined with $500 in gas stamps, an iTunes gift card valued at $100, and a Ford."
Dollar rallies!
The funny thing is, this is only the capital that they need right now to stay afloat. Wait till they need more. Now that we own a major stake in this puppy, guess what will happen then?
misean,
the forces of the credit destruction and unwind will be greater than the minor impact of printing up $85 billion.
plus, to unwind you need cash cash cash baby.
USD going up.
What happens when C & BAC go south ?
Angry Renter --
This is totally different than Bear (which was actually a loan to JP Morgan). This is a forced ownership stake in an ongoing firm.
It was a 10-year un-callable "loan" at extremely low interest. Which is to say, not really a loan at all.
This "forced ownership stake" is arguably not really a loan, either. We will have to see the details.
Gordon Gecko --
This meeting was held by Paulson, who is indeed a member of the bush administration.
And the alleged violation of the law was... ?
Paulson is acting as messenger and facilitator. The Treasury has no authority here unless the Congress passes some new legislation.
I assume the goal here is to hand off this nightmare to the Treasury, because keeping it with the Fed sets a very dangerous precedent. Not to mention they don't really have the competence in-house to manage the assets... But again, any such hand-off would require Congressional authorization.
If you believe "containing systemic risk" is part of the Fed's mission (and that they are not just a massive conspiracy to transfer all wealth to the banks), then you have to admit they have been dealt a very difficult hand here.
I want to see the terms of this "loan" before passing judgment.
I dont whether to cry or poop on myself. Maybe I'll do both.
AIG getting loan. Govt wipes equity with warrants. There will be a rally on this, but unlimited loans didn't help Lehman so stay tuned...
Big rally tomorrow. QLD the 2x QQQQ may be good trading vehicle.
This doesn't fix the underlying consumer problem with credit/housing.
CDS may trade a lot less as banks trust each other less and prime brokers may get tighter with terms. Where are dealers going to make money?
The same shit that got AIG pooched is in Citi's book and SIVs. So they are next in my guess. Is the Fed ready with another 100bn for them?
Consumer credit is going to be harder to get and after this rally and I will be buying SKF again hopefully around 100.
USD has to suffer. UDN is one way to play.
I need clarification on this:
The way I read it, 85 Billion is a "load", not equity injection. So AIG is paying 80% of stock for the privilege of getting a loan, not the for the loan itself. In other words, 0 $ paid for the 80% share.
Am I wrong on this?
What is the CNBC ad? "I believe that the free market is the best path to properity." HAHAHAHAHAHAHAHAHA!!!!!
Norm Chomsky thoughts.
YouTube - Free Market Fantasies by Noam Chomsky 1/5
no competence in-house to manage assets
Blackrock, baby, Blackrock.
Was this deal about liquidity or solvancy?
If it's liquidity, this is probably a good deal for the US and taxpayers. It will save us money in the long term as less institutions fail beacuse of counterparty colapse. It's the Fed's role is to provide liquidity in times of crisis.
If this is about solvancy... well... the taxpayer is taking undo risks and the Fed is over-steping it's bounds.
Which is it?
BINKO SAID: "A quick scan of the Constitution shows no grounds for Federal Reserve authority to do this".
Er, I hate to tell you, but under your analysis the Air Force must be immediately abolished.
The Air Force of course is not mentioned in the Constitution because they did not have airplanes back then.
Only the Army and Navy are mentioned.
THEREFORE, the Air Force must IMMEDIATELY be abolished, according to such simpleton logic.
Matt Dubuque
Where's the other 20% coming from?
The funny thing is, this is only the capital that they need right now to stay afloat. Wait till they need more. Now that we own a major stake in this puppy, guess what will happen then?
I always thought the dealer gave you the first hit free, then started charging out the wazoo. Paying $80B to become an addict is a whole new level of hutzpah.
"What happens when C & BAC go south ?"
Consolidation, baby! All you banking and insurance are belong to us!
--Subcommander Bernanke
Angry Renter, I put this up on the previous post..."Is this a problem", serious question:
NEW YORK (MarketWatch) -- One of the first and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck."
Primary Fund RFIXX a $64 billion fund managed by money market fund inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero
http://www.marketwatch.com/news/story/money-market-fund-breaks-buck/story.aspx?guid={56A2CEE5-5A53-4A27-A4BA-585CFBE173A4}
G --
Am I wrong on this?
You are correct. The problems arise when you ask: What if AIG cannot repay the loan?
You Americans feeling a little ragged and bloody. I have something that will fix you right up!
Oh, does anybody know a good insurance company?
"I don't think it is that bad. The only reason FED want 80% is to punish the shareholders and control the liquidation process. I have no doubt the company will be sold piece by piece in the next year or two?"
It's too convenient to forget the liabilities, which far exceed the assets.
Was this deal about liquidity or solvancy?
If the Fed didn't loan this money to AIG, it was going to declare bankruptcy.
If that's not insolvency, I don't know what is.
Comrades,
Born and bred American dopes.
Comraade Nemo is correct. THE FRB own this shit pile. Of course they pay for it by printing TRN's ($'s) so it's not like you ain't taking it up the bung hole.
Nostrovia,
AIG, like the GSEs, was a widely owned stock. These kind of wipeouts are hitting institutions and pensions as hard as regular investors. The portfolio pain alone will kill the Street before long.
This is in insanity. When is the FED and the goobermint allow these companies to fail and let the market take its course?
By propping up all the c&*p, it delays the inevitable, which will be much worse.
I am so disgusted by this. Why does the goobermint allow this to continue? I for one do not like the idea that my taxes are gonna go up to pay for this nonsense when all is said and done.
If they are broke, lettum go, I say!!!!!!!!!!1
Maybe Wall Street should relocate to Vegas?
Wall Street has Bailout Ben on the ropes?
Didn't the Fed state they would take equity? With enough unusual and exigent circumstances, the Fed can backstop the entire equity markets.
I miss sleep.
If these outfits are too big too fail, they need to be broken up so they can fail.
This is extortion.
Give us all your money or your economy will collapse.
It's the ultimate swindle and our politicians are falling for it hook, line, and sinker.
I call bullshit. Not a single one of the politicians signing off on this need to be conned; their job may be to con you that they were "forced" into it, but they are all in on the act. They are just doing their job, it's why they get (a tiny percentage of) the big bucks.
This about preventing sudden collapse of the system. Hey, they day is coming fast. Fed and all these crooks has power as longs as FCB buy our junk papers. The problem is we are scaring the FCB whose life will on line when they loose their countries asset on US paper. I hope FCB either they wake up or die with us.
Question...How does one loot the looters. Answer...just walk away.
If I were WM, WB, GM, F or anyone else needing money, now, before the elections, is the time to make the threat of BK. After November 7th, the FED/Treasury won't care.
This almost makes the BSC deal in March seem mundane.
I wonder what is next? Surely nothing could be bigger. Right?
It's pretty clear that any company that can't get a bailout is run by chumps.
BSC: Elite
FNM: Elite
FRE: Elite
LEH: Chumps
AIG: Elite
F: ?
C: probably elite
WM: probably chumps
I believe the 80% stake is only to ensure the Fed (taxpayer) can reap the upside in the (unlikely?) event AIG can be nursed back to health. I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind.
The Fed will get its money back before the existing shareholders get jack, I suspect. Unclear about the bondholders; I am not sure where the Fed can insert itself into the capital structure, exactly.
But I bet they do it in the most conservative way possible. They have to think that exposing the central bank to credit risk is very, very distasteful.
Parteigenosse is the correct term. It isn't comrade. Fascism is here and now.
Born and bred American dopes.
A recession starts one morning when everybody wakes up and realizes they're a bear.
A depression starts when everybody wakes up and realizes they're Jas Jain.
I'm with ratefink. The people have very little to do with getting the chumps in Congress reelected anymore. And that is all they care about.
They don't represent us. They ignore us all they can and placate us when necessary.
Someone last night posted a link to Irving Fischer. I am reposting it as it was "Tanta" quality. We are looking at deflation. The selling apples on the street kind.
The Debt Deflation Theory of Great Depressions
If you think the repubs & the MORON Administration had nothing to do with this, I've got a Bridge Loan to sell you.
This is about solvency and the losses they are taking on their derivative investments. The money they will need to address their derivatives portfolios will be a dynamic thing. This is just the beginning.
We really need to return to a gold standard. Fiat money is a travesty.
Okay, the Fed owns AIG.
Who owns the Fed?
I keep hearing it's a private corporation, not a government agency.
Or did the Fed get bought out by, I dunno, the Department of Agriculture?
Comrade dc1000,
"the forces of the credit destruction and unwind will be greater than the minor impact of printing up $85 billion.
plus, to unwind you need cash cash cash baby.
USD going up."
Concur...but it's a bit jittery now.
Nostrovia,
(202) 224-3121
I'll be calling my house rep and my senators tomorrow AM on the way to work.
I will be asking everyone who picks up how the federal reserve has the authority to do this, over a company they have no authority, spending taxpayer dollars they have no right to spend.
I'll also be asking if I, a taxpayer, have any representation left in government.
(202) 224-3121
Switchboard - Congress
(202) 224-3121
Sb --
F: chumps (to Fed)
elite (to Congress)
Worth keeping the distinction in mind.
Someone (I think JD on a previous thread) wondered cynically if Lehman was the lone firm allowed to go BK because their management were Democratic supporters.
I had to check. Not a single member of Lehman's Executive Committee has, according to Open Secrets, ever given a dollar to any politician. The odd thing is, a couple of the names are pretty ordinary, like there might be more than one guy in the world with that name.
Odd.
It's too convenient to forget the liabilities, which far exceed the assets.
Maybe, just maybe, we should assign numerical values to a crashed economy and one that is limping along. Then include those values into the calculus you mention above.
It turns out nobody thought Paulson had anything in his pocket after all. Good ol' Paulson. Always good for a laugh.
Nemo, we need more details, but I think you have right. This is a loan. AIG assets will be sold over time. The Fed will be repaid - probably after the bondholders - and if there is anything left of the Company, the Fed has warrants for 80% (to dilute the common).
For AIG shareholders, this is pretty close to a complete wipeout. To other parties - especially counterparties and debt holders - this is good news. But we need to see the details to be sure.
Best WIshes.
I believe the 80% stake is only to ensure the Fed (taxpayer) can reap the upside in the (unlikely?) event AIG can be nursed back to health. I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind.
The Fed will get its money back before the existing shareholders get jack, I suspect. Unclear about the bondholders; I am not sure where the Fed can insert itself into the capital structure, exactly.
But I bet they do it in the most conservative way possible. They have to think that exposing the central bank to credit risk is very, very distasteful.
The problem I have with the Federal Reserve doing anything is that I look around me and see what they've done so far.
Why should I think all of a sudden that everything the Fed does will come up roses when everything they've done so far has lead to where we are now?
It's like saying all GWB needs is 4 more years to make everything right.
Do you see why that would be a bit hard for someone to swallow?
Oh, wait. If I own a share of the Federal Reserve, I'm guaranteed six percent a year in dividends.
At my age that sounds like a good deal.
FRB: FAQs: Federal Reserve System
Who owns the Federal Reserve? ...
FRB: FAQs: Federal Reserve System
Who owns the Federal Reserve?
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year. ...
People are more concerned about their favorite shows coming on at the same time than a measly bailout by the government.
Nemo:
I believe the 80% stake is only to ensure the Fed (taxpayer) can reap the upside in the (unlikely?) event AIG can be nursed back to health. I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind.
I agree with this. But even FED simply plan to run the company off and liquidate everything (over some time), can't they engineer it so that they garantee they get paid first?
"Not a single member of Lehman's Executive Committee has, according to Open Secrets, ever given a dollar to any politician."
Well, that pretty much says it all, doesn't it?
All, remember this isn't a done deal yet (at least not by these reports), and we haven't seen the details.
Best to all.
UBS may beat C to the mat.
Does this mean Bill Gross will break even this week?
"The Fed will get its money back before the existing shareholders get jack"
What would be preferable is that we get our money back before anyone. We go from the front where we should be to the back.
"If you think the repubs & the MORON Administration had nothing to do with this, I've got a Bridge Loan to sell you."
LOL! Like greed is strictly a GOP character trait. I don't recall the DEMs stepping in the way to slow runaway household appreciation and HELOC induced megaspending. Maybe I missed it.
Who owns the Fed?
I keep hearing it's a private corporation, not a government agency.
The fed is a quasi public/private entity. Member banks own the shares but ultimate control rests with congress.
Member shareholders get 6% returns on equity. Yearly profits are given to the treasury. If memory serves, the fed earned ~ 26B in 2006.
Four More Years!
Four More Years!
Four More Years!
Nobody likes a quitter, George! Finish what ya started!
(Dear AT&T and NSC, please file under 'Blue List.')
So what happens if despite the loan AIG is still insolvent and the Fed exercises the warrants? Is the Fed really going to take responsibility for AIG's liabilities?
All, remember this isn't a done deal yet (at least not by these reports), and we haven't seen the details.
Best to all.
Calculated Risk
Come on CR. Join in the hysteria.
You know you want to.
I wonder if you can convince the bank that you haven't really defaulted on your mortgage, but you're just suffering from a "lack of liquidity". Tell them you've got the Bank of Bernanke on the other line for a nice bailout.
me
The Fed is owned and operated by the Member Banks.
CSC if you have AT&T DSL (as I do) you'd better read that new contract they just sent changing the terms. Just your handle alone would be reason enough for them to dump you and throw away all your e-mails if they wanted to. It's a scary document. They say they would never cancel someone just for advocating political positions, but (and they say this all in one sentence) they can cancel you if you do ANYTHING the least bit illegal, like copying something from another website.
Great idea Nobody, after all, it's not fair that I should have to file
BR just because I need a "bridge" loan...right?
Opitz writes:
Next year I am going to send you some czech crowns as charity...
Opitz | 09.16.08 - 8:50 pm | #
i'd rather have a czech whore
I feel like I am in the middle of a game I thought I understood, knew the rules, how to keep score. BUt now. all of a sudden I have the sense of complete confusion, and what they are saying sounds reasonable in a way, but feels really really wrong. Just somehow incongruous with what I have thought was playing along with the rules.
Bottom line...this simple american bozo on the bus has decreased confidence in not only the markets, but in the economy being something that is going to work with and for my interests. Exponentially worse.
I fold.
That makes me a little queasy suecris. Thank you for the info. I'll take a look.
ac --
I am not saying it is going to come up roses. I wasn't kidding about "a bridge paved with good intentions".
But I do not think they have the destruction of their balance sheet / their credibility / our currency as an explicit goal.
G --
But even FED simply plan to run the company off and liquidate everything (over some time), can't they engineer it so that they garantee they get paid first?
Ahead of the shareholders, including the preferred shareholders: yes. Ahead of some or all of the creditors: I do not know.
That is what I meant by wondering where they can insert themselves in the capital structure. I have seen at least one report that claims their bondholders will take a haircut. I have no idea whether that is true or even possible... Holders of the debt presumably have certain legal protections, which I thought could only be nullified in bankruptcy. But who knows.
Comrade Nemo,
"I do not think they care about controlling the company; only shoring it up to ensure an orderly unwind."
That's the problem. People think this can be done in an "orderly" manner.
I don't. It just sucks what little capital is left into the maw of this giant capital chipper. When it runs out...KAPLOEY!.
Stop wasting the seed corn.
Nostrovia,
Honestly, Mr. Banker - this isn't a solvency issue - I just need more liquidity. Float me another loan. I'm totally good for it.
Hummm, AIG has a new logo..
USAIG, United states Insurance Group,,,Wow,,,,hilllary wo
I had to check. Not a single member of Lehman's Executive Committee has, according to Open Secrets, ever given a dollar to any politician.
Very odd. Generally speaking employees and management of the big finance companies are enthusiastic supporters of both sides. Very suspicious indeed.
On the wire: "Person (unnamed): AIG LOAN IS FOR MAXIMUM TWO YEARS"
(202) 224-3121
Lets get our representatives worried.
"and if there is anything left of the Company, the Fed has warrants for 80% (to dilute the common). "
Based on the recent bank insolvencies and the LEH debt recovery projection, we're looking at a zero.
CR: Yesterday Paulson said there would be no bailout. Why do we believe anything he says now?
People think this can be done in an "orderly" manner.
Maybe just long enough for Bush and Co. to capture the Iranian oil fields and bankrupt Russia.
just a thought
Not a single member of Lehman's Executive Committee has, according to Open Secrets, ever given a dollar to any politician.
Check their spouses.
Front page Yahoo Finance. Bailout loan is official.
A few questions immediately come to mind:
1) Why only 80%?
2) I assume the loan consists of Treasuries, which AIG will then sell for cash?
3) Why warrants and not equity?
C'mon CR, do you think they can impose any expectations on AIG at this point? Are they going to let it fail if it doesn't work out as intended?
AIG Said to Accept Federal Takeover, Replace Managers
Fed press release.
JP-"Check their spouses."
Damn! You want a job?
Interest rate LIBOR + 850 bps!
Damn! You want a job?
You need a CEO to crash your company into the ground? I'm waaay cheaper than Fuld.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firms assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
Wow.
But I do not think they have the destruction of their balance sheet / their credibility / our currency as an explicit goal.
I wish they did.
At least we could give them credit for being self-aware.
Comrade CR,
"On the wire: "Person (unnamed): AIG LOAN IS FOR MAXIMUM TWO YEARS""
Yeah, until the two years is up. Then it rolls.
Nostrovia,
Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points.
WOOF! Talk about subprime!!!
Well, that release makes it sound like the Fed has AIG by the short hairs.
The fine print is yet unknown.
AIG Said to Accept Federal Takeover, Replace Managers
``The alternatives are much worse,'' said U.S. Senator Charles Schumer, Democrat of New York, in a statement after lawmakers met with U.S. regulators.
Umm - I was wrong about Open Secrets and the Lehman executives because I'm stupid and don't know how to use a database. Going off to sleep now.
79.9 percent equity interest in AIG
The new thread is up with the Fed announcement.
Best Wishes for all. We might need them!
CR,
Thanks for being the voice of reason. While I'm not happy about the state we're in, if (and everything is preliminary at this point), it sounds like the FED has put up enough cash to see to an orderly unwinding of AIG. I'm guessing that the common goes to 0, just like you. AH AIG was down 30%; and for all of us with a short term memory, bid on FNM is now $0.48.
Now should the FED do it? Don't know. But is it a bailout -- probably no more (from a common perspective) that FNM was.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firms assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
I see Krugman has finally woken up to the Treasury fails to deliver, fails to receive angle that was getting play here late Sunday night. I think it was here - another poster noted the trend line at about 700%.
Like 40 hours ago. Does he not have staff?
pinning the tail on the elephant
Phil Gramm writes:
This is how it's supposed to work. When I introduced the Commodity Futures Modernization Act in the Senate in 2001, it guaranteed that derivatives would not be regulated. That was the whole point. Since then, AIG and everyone else has had a party with derivatives.
This is where the problem started Gramm Bushco etc.
This was authorized by the US Congress and signed into law by Bush.
They all live on the cheating side of town.
BTW Gramm still strongly influences
one of the candidates
Whoever made the point that AIG had many months to sell assets before hitting the skids was right on.
That's the deal breaker for me (besides the moral hazard issue).
The AIG execs probably have a million times more wealth than the combined wealth of everyone on this blog, but they didn't clean this up (or try to clean it up) months ago?
I guess the ultimate justice is that they will end up with Ebbers in Oakdale.
First comment, then read thread. Check.
I'm really hesitant to catch up on the news of the day here. Pretty good call on Barclay's though, eh?
So possibly AIG and Fed related (isn't everything?):
Liquidnet and its luxurious dark pools. Would someone familiar with this animal please make it simple for the rest of us. It really seems like the ready escape hatch for all those nasty people that are suddenly going to be regulated out of their fortunes.
Anonymous global trading. That's the bottom line, right? They filed for their ipo, but it doesn't seem to have happened yet. If anyone has details, would love to hear more.
And its not the only one out there, by the way.
This one has cover from the Democrats.
The equity is given the 80% haircut and we see what happens.
I'm not sure how this is different from bankruptcy, but the bondholders will make out better.
The rational way to handle this, given what they have done is to sell everything but the capital markets group and the mortgage insurer. As soon as possible.
With the loan, they get their credit rating back and therefore don't have to post collateral.
I think the loan gets paid back. And sooner rather then later.
This is significantly different then the typical investment bank, because they are a huge, profitable insurance company with a crappy capital markets unit and a little mortgage insurance unit.
I had expected bankruptcy, but this will end up being cheaper.
This is fundamentally different then F&F because this company will get chopped up quickly into the good and bad pieces and the residue will have a pretty big cushion of capital. The decent businesses will sell quickly for a good price.
Dow component with the AMERICAN in its name.
This is not that different then what I envisioned in bankruptcy, but should be cheaper and less traumatic.
American Airlines is the only legacy carrier that hasn't declared BK. BoA will not be allowed to fail either.
Obviously, absolutely no one here will either agree with or believe a word I say.
However, it is another point of view.
24 months? Not really a "bridge" loan. This is a huge draw on the Fed - 10% of assets, and they can't count on getting out until the 2010 election. Dig that interest rate, though. 15% right now!
been lurking here since Sunday and it feels like watching CNN during gulf war I. Not a pretty experience. But learning a lot.
The BBC offers some comic relief, see URL.
"It is very important to unwind a position because otherwise you end up having 100 barrels of oil delivered to your desk, which is embarrassing."
I am huge fan of this guy on CNBC Asia.
plschwartz, have you a link on that Gramm quote?
Thanks.
I thought the Gramm quote was earlier in the thread, made up by some wise ass.
"us dept of chevy" up next!!!
us air doesnt even have to change its name!!!!
You guys really seem to be cheerleading for financial collapse here. I know we all hate the Bush administration (myself included), but lets be realistic.
This is actually a pretty good deal for the Fed. AIG is in a liquidity crisis, not a capital crisis. This loan allows them to post collateral and stay out of bankruptcy.
Once the CDS and RMBS securities owned run-off, the intrinsic value of the insurance operations will exceed losses. This company had $78b in equity at 6/30 even after taking about $35b in losses on CDS and RMBS positions.
I honestly believe that the Fed made us money tonight. I've been wrong more often than not before, however.
Sid Sanders, that's beautiful, just beautiful.
You made my day.
The comment about the loan being collateralized by all of AIGs assets, and the assets of its subsidiaries suggests to me that they are trying to wedge themselves in above senior unsecured creditors. Basically, it sounds like the Fed is trying to take over the role of the bankruptcy court.
What's bizarre is the delegation of lawmakers in the dog and pony show has a Republican majority. The Democrats have had a majority in both houses since '06, did Paulson/Bernanke not get the memo?
When 85 billion can be put up to acquire a failing company without any transparency or deliberation of the legislative branch then I think we have lost a bit of democracy.
What if the loan cannot be paid back, as the assets become next to worthless?
This is very hard to understand and the ramifications seem unpredictable. Who understands credit default swaps?
With each drastic action, confidence erodes.
"As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
What complete and utter bullshit. Tell me where in the hell the Fed is getting 80 billion bucks to buy 80% of a private company if they don't get any funding from congress?
Quasi-private? Part of government but not? Not answerable? Blah blah blah, what a con job.
"When 85 billion can be put up to acquire a failing company without any transparency or deliberation of the legislative branch then I think we have lost a bit of democracy. "
Lawn Grass, you evidently didn't get the memo. There hasn't been any democracy in this country for a very long time.
3 month LIBOR plus 850 beeps! Dang this must be the ULPS (Uncle Lenny's Pawn Shop) Facility!
I am still a bit suspicious about the deal but at this moment I have to say "good job" to the FED.
usa was/is a (pseudo) democratically elected republic.
and...
XOM needs to come get some $$$ to study alternatives to crude oil/ng. its only fair..
this is another stick save for McCain and a punishment if you didn't run with the government and get into debt...Well here it comes for me...
debt... I hope its fun...sounds like it..
CR
The bbc glossary has got to have a counter.
BBC NEWS | Business | Glossary of the credit crunch
How about CR host an HL Mencken or Devil's Dictionary alternative? Could host as a competition like Gawker did a month or so back.
Extra points for insight and snide attitude.
For instance:
"Unwind" - terminating a market position, generally following a tactical investment thesis of "OMFG, sweet jesus has it come to this?"
"Risk management" - a practice of ignoring probability of losing colossal amounts of shareholder value until someone finds out what the hell you're up to.
There could be some fun in this.
85 Billion Dollars comes to approx $250 for each and every man woman and child in this country.
I don't know about you but I think that I, my wife and my kid would rather our $750 piece of this bailout was spent on something else.
CR
But more seriously, how does Sec13(3) apply here? Could arguably meet the tests of unusual and exigent circumstance, albeit not according to most of the commentators here... but the legal pivot is presumably the "adequate" credit accommodations line. According to whom? The party in distress or the Fed?? I don't get it.
Viz:
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.
It applies to individuals too. Why? How? Precedent??
The Democrats have had a majority in both houses since '06, did Paulson/Bernanke not get the memo? ~ Don
The US Senate since 2006 has been: 49 Dems, 49 Repubs, 2 Indys.
mp
It was a poster named phil gramm at 8:48
Sorry if it was misleading
Have to say the terms of the loan make me feel a bit better about this, all in all a better deal for taxpayers that BSC. Still not crazy about it on legal/constitutional grounds, but on a dollars and sense level kind of looks like the least worst outcome.
"So which airline, car manufacturer, home builder, or steel maker gets the next bailout?"
Dear Comrade, are you not knowing about $25 billions funding for cars that are green? They want more $25 billions but because maybe of AIG, Congressman don't pay...... Bwaahahahah.
This is just like the Housing bill - government gets 50% of your home if you take advantage of their "help" - pretty quick it's going to be real clear exactly how much of everything the government has a "stake" in - I can just imagine the figure they'll come back with on Fannie and Freddie - almost better off letting them go down.