WASHINGTON, Oct. 8, 2008
Fed Grants AIG Additional $37B Loan
Insurance Giant Got $85B Bailout Last Month; White House Calls Firm's Near Half-Million Dollar Executive Retreat "Despicable"
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Play CBS Video Video AIG CEOs Under Fire In what could lead to another crippling blow to the Wall Street's image, Katie Couric examines Congressional hearings involving the alleged corrupt practices of former AIG CEOs.
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AIG suffered huge losses when its credit rating was cut, thanks largely to complex financial transactions known as "credit default swaps." (AP Photo/Mark Lennihan)
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Timeline Financial Meltdown Track major events that lead to one of the most tumultuous times in Wall Street's history.
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Timeline Credit Crunch Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
Under the new program, the Federal Reserve Bank of New York will borrow up to $37.8 billion in investment-grade, fixed income securities from AIG in return for cash collateral. These securities were previously lent by AIG's insurance company subsidiaries to third parties.
Last month, the Fed provided an $85 billion loan to the company, which was on the brink of bankruptcy.
The White House said on Wednesday it was "despicable" that AIG executives spent hundreds of thousands of dollars on a posh California retreat just days after getting the $85 billion bailout.
Lawmakers investigating the meltdown of AIG said the retreat didn't include anyone from the financial products division that nearly drove the company under, but they were still enraged that executives of AIG's main U.S. life insurance subsidiary spent $440,000 on the retreat, complete with spa treatments, banquets and golf outings.
"It's pretty despicable," White House press secretary Dana Perino said.
AIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government that it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.
"The president did not want to move forward on this rescue package to help anybody in the top positions on Wall Street," Perino said. "He was concerned about everyday people like you and me. ... He didn't do that to help top executives and certainly not to help executives go to a spa."
The hearing also revealed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released Tuesday by the panel examining the chain of events that forced the government to bail out the conglomerate.
AIG's problems did not come from its traditional insurance subsidiaries, which remain healthy, but instead from its financial services operations, primarily its insurance of mortgage-backed securities and other risky debt against default. Government officials feared a panic might occur if AIG couldn't make good on its promise to cover losses on the securities; investors feared the consequences would pose a threat to the U.S. financial system, which led to the government bailout.
AIG suffered huge losses when its credit rating was cut, thanks largely to complex financial transactions known as "credit default swaps." AIG was a major seller of the swaps, which are a form of insurance, though they are not regulated that way.
The swap contracts promise payment to investors in mortgage bonds in the event of a default. AIG has been forced to raise billions of dollars in collateral to back up those guarantees.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Michelle Obama tells how her role as the First Lady has changed her perspective.
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See all 194 Commentsdetermine whether the two are adequately managing the risks of their
ballooning portfolios.'' Democrats pushed back. ''Among the groups
denouncing the proposal today were the National Association of Home
Builders and Congressional Democrats who fear that tighter regulation of
the companies could sharply reduce their commitment to financing
low-income and affordable housing''. ''These two entities, Fannie Mae and
Freddie Mac, are not facing any kind of financial crisis'', said Barney
Frank of Massachusetts, the ranking Democrat on the Financial Services
Committee. ''The more people exaggerate these problems, the more
pressure there is on these companies, the less we will see in terms of
affordable housing.''
Representative Melvin L. Watt, Democrat
of North Carolina, agreed. ''I don''t see much other than a shell game
going on here, moving something from one agency to another and in the
process weakening the bargaining power of poorer families and their
ability to get affordable housing,'' Mr. Watt said.
deregulation policy. It''s like the ''pot trying to call the kettle
black.''
New York Times - Five Years Ago
The following article reported in the
New York Times five years ago. You won''t hear this from the liberal
media !!
It seems that the Bush administration
proposed increased oversight and regulation of Fannie and Freddie, but
Democrats fought it. Here''s the article:
''The Bush administration today
recommended the most significant regulatory overhaul in the housing
finance industry since the savings and loan crisis a decade ago. Under
the plan, disclosed at a Congressional hearing today, a new agency would
be created within the Treasury Department to assume supervision of
Fannie Mae and Freddie Mac, the government-sponsored companies that are
the two largest players in the mortgage lending industry. The new
agency would have the authority, which now rests with Congress, to set
one of the two capital-reserve requirements for the companies. It would
exercise authority over any new lines of business.
Is this a classic example of throwing good money after bad.
Why give so much money to a foreign owned conglomerate ? I know, it''s only a loan, till they can''t pay it back. Then it''s free money to them.
And we the taxpayer, is left holding the bag.
Obama08
And yet incredibly- they are going to loan these crooks ANOTHER $37 billion!!!!
VOTE TERM LIMITS AND GET THE BUMS OUT OF OFFICE
TIME FOR A CLEAN SWEEP OF WASHINGTON FROM STREET TO STREET..........
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