WASHINGTON, Nov. 10, 2008
Feds Dip Into Bailout Package To Help AIG
New $40B Infusion Boosts Total Aid To Troubled Financial Giant To $150B
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(AP)
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In-Depth Q&A: AIG Answers to some key questions about the insurance giant's latest bailout boost.
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Timeline Credit Crunch Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company. All told, the moves boost aid to the company to more than $150 billion. Fed officials, however, expressed confidence that the money would be repaid to taxpayers.
The $40 billion infusion comes from the recently enacted $700 billion financial bailout package. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.
As part of the new arrangement, the Federal Reserve is reducing a $85 billion loan it had made available to AIG to $60 billion. The Fed also is replacing a separate $37.8 billion loan to the insurance company with a $52.5 billion aid package.
The actions were needed to "keep the company strong and facilitate its ability to complete its restructuring process successfully," the government said.
Shares of AIG added 36 cents, or 17.1 percent, to $2.47 in late-morning trading. The company's stock has traded between $1.25 and $62.30 in the past year.
It marked the first time money from the $700 billion bailout package Congress enacted last month has gone to any company other than a bank.
Struggling U.S. auto companies — General Motors Corp., Ford Motor Co. and Chrysler — have been pressing the government for more financial assistance. The money would be on top of the $25 billion in loans that Congress passed in September to help retool auto plants to build more fuel-efficient vehicles.
The Treasury Department, which is overseeing the bailout program, has promised to inject $250 billion into banks in return for partial ownership. The original notion behind the bailout package was to help financial institutions lend money more freely again, one of the main reasons the economy is in danger of getting stuck in a long and painful recession.
Until Monday, all of AIG's bailout relief was coming from the Fed.
The Fed, earlier this year, said it would loan a total of $123 billion to AIG. The insurance company was later allowed to access another $20.9 billion through the Fed's "commercial paper" program. That's where the Fed is buying mounds of companies' short-term debt often used for crucial day-to-day expenses, such as payrolls and supplies.
Monday's restructuring provides AIG with easier terms on the original Fed loan. The new package reduces the interest rate AIG will pay and will extend the loan term to five years from two, reducing the need for AIG to sell off business lines and other assets at firesale prices to repay the government.
Under the new $52.5 billion package, the loans will last for six years. Through two new facilities, the Fed will fund the purchase of both residential mortgage-backed securities from AIG's portfolio, and collateralized debt obligations, which are complex financial instruments that combine various slices of debt.
By taking these troubled assets off AIG's balance sheet, it should take stress off the company, giving it more breathing room and helping to prevent future losses, Fed officials said. The Fed doesn't believe it will suffer losses because it is hopeful the market for such distressed investments will recover as the economy and financial markets rebound.
AIG reported Monday that continued financial market turmoil resulted in a large third-quarter loss.
The New York-based company said it lost $24.47 billion, or $9.05 per share, after a profit of $3.09 billion, or $1.19 per share, a year ago.
Results included pretax losses of $18.31 billion tied to the declining value of AIG's investment portfolio. They also were hurt by catastrophe losses and charges related to restructuring.
Excluding items, operating losses totaled $3.42 per share — missing analysts' average loss estimate of 90 cents per share, according to Thomson Reuters.
In early October AIG said it would sell certain business units to pay off the $85 billion Fed loan. The company, however, said it plans to retain its U.S. property-and-casualty and foreign general insurance businesses. It also plans to keep an ownership interest in its foreign life-insurance operations.
AIG is a colossus on Wall Street and financial districts worldwide, with operations in more than 130 countries and $1 trillion in assets on its balance sheet.
Besides life, property and other insurance offerings, AIG provides asset-management services and airplane leases. Its myriad businesses are also linked to mutual funds, annuities and other retirement products held by millions of ordinary Americans.
But perhaps the biggest concern about AIG is the dizzying array of complex financial instruments it structured for commercial banks, investment banks and hedge funds around the globe — many of which were directly or indirectly linked to the value of U.S. mortgages.
© MMVIII The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
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See all 120 CommentsI would argue that controlling the build-up of debt falls under Congress'''' constitutional authority to print money and determine its value. Debt increases the money supply and devalues the currrency already in circulation.
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Yes, and even that has been given over to PRIVATELY OWNED BANKS called the FEDERAL RESERVE. The Federal Reserve is neither "Federal" nor a "Reserve". It is a conglomeration of privately owned banks.
This will make it MORE LIKELY that someone in the military will decide to pull off a COUP D''ETAT next year to overthrow him. At this point, a military dictatorship might do less harm to the nation that the current Congress.
Wouldn''t THAT make the news more interesting...
Posted by brucestevens at 08:17 PM : Nov 10, 2008
We outsourced that to China in 1994.
When even a wrecking ball like Barney Frank gets re-elected by 69% of his constiuents, it is clear that our election system is not working. Of all incumbents, he was the one MOST deserving of being thrown out.
Still looking for that tank driver in the metro Washington DC area...
Posted by swin5 at 08:23 PM : Nov 10, 2008
Then you are TOTALLY PSYCHOTIC and your opinion means nothing to me. Good evening to you.
Posted by lovegetpeace at 07:53 PM : Nov 10, 2008
Gosh, maybe we should all send emails and letters and phone calls to our members of Congress to stop this.
Yah, that worked SO WELL to stop the bailout.
They just keep turning the screw tighter on the middle class. They REALLY ARE trying to make us all their serfs.
The number of victims to whom Wall St and ''off Wall St'' investment bankers have caused financial ruin, is absolutely mind boggling. In America alone, that number(with modest estimates) is in the TENS OF MILLIONS to more than a HUNDRED MILLION, and globally, financially ruined and cheated victims (modestly again) tally HUNDREDS OF MILLIONS, and is likely to be over A BILLION PEOPLE!
What continues to be covered up, is the fact that the so-called free enterprise/rape-the-public system, has granted and protected these financial and fiduciary parasites, with LICENSES TO STEAL. And swindle, and mislead, and scheme and scam, and steal they did.
Confiscation and redistribution of these financial criminals'' money, properties, assets, etc, along with meting out appropriate long prison terms must be sought after by government prosecutors.
By the way, many of these parasites are already planning for the new cycle of investment ''products''!
Perhaps just as fraudulent is the fact that those who were appointed to repair the disaster, are part of the ''Protect-Wall-St-&-friends'' establishment. It''s not better than the fox watching over the hens'' coop!
Unless you change the "GROUND RULES FOR EACH ELECTED OFFICIAL ",you will continue to get the same results .
The election monies are by far identified as being from the PRIVATE SECTOR and not THE INDIVIDUAL.Your FRIENDLY POLITICAN has no choice but to vote THE MONEY TICKET.Its certainly NOT your ticket.
If you want change,try a three term limit or upper limit on CORPORATE DONATIONS.You will quickly get huge resistance to this "SUBVERSIVE IDEA" FROM MANY QUARTERS (A COMMIE PLOT ,ETC) If you do,you will know you are on the right track for real change.
Actually, there may be some bit of communism is these rules. But anymore than the New Deal, or welfare, or Social Security, or the bailout of AIG or the big banks?
Inheritance taxes are an attempt to deal with the issue of wealth handed down through generations.
I would argue that controlling the build-up of debt falls under Congress'' constitutional authority to print money and determine its value. Debt increases the money supply and devalues the currrency already in circulation.
Finally, I argue that the working man has a claim to a ''fair'' share of the wealth - I never said an ''equal'' share. In our current system, the wealthy class buys and controls the government and makes sure that all laws and regulations are written to guarantee their wealth and power. We had tremendous growth after WWII, a period characterized by a strong labor movement. Need I remind anyone that both the federal and state governments violated the constitutional rights to freedom of speech and freedom of assembly in helping the wealthy class put down the labor movement. Ironic how the Great Depression began to end when the Wagner Act, recognizing organized labor, was passed. Coincidence? Also, is it a coincidence that first came the anti-union president in Ronald Reagan, and then comes NAFTA with Bush/Clinton and once again the wealthy class has reverted to exploiting labor, albeit in foreign countries. And once again we are on the verge of another, perhaps even greater, depression.
1. If a lender knows he will have to forgive a debt after a certain period of time, he will be very careful who he lends to and why. We would not, as a result, have such a huge current debt load.
2. Work without investment is ludicrous. If it wasn''t for investment, we would be all working with our hands and without tools.
3. Am I against handing down the family farm to your children? - yes. Give your child a good moral base and the foundation of a good education and let him do the rest. And, by the way, how about the slaves who were freed after the civil war who could not own a farm in an agrarian society because all the land was already owned by whites and was being passed down to the family? Or how about our Native American population - don''t they have a rightful claim to all the land as it was stolen from their ancestors? And who would argue that the Ford Motor Company or the Schwinn Bicycle Company prospered under the heirs.
4. You do have a right to own what you EARN from your labor. I own the bookcase that I made of wood. However, I won''t claim the right to own the forest - that is the wealth of the earth given by the Creator to all men. As an example, did any one Indian claim to own the entire buffalo herd? Did any one Indian amass a fortune of wealth while the rest of the tribe lived in poverty. I think in some ways the Indians knew more about living in this land than we ever will.
Ideal communism, not the corrupted kind that ended up taking control....
Congress is considering increasing the Quota of the H1B Visa from the current 65,000 per year to 125,000 per year. This is the program where foreigners from mostly India come to this country to work. Hence, competing with lower salary requirements.
We need to stop if not eliminate this program as the market is getting Staturated for all Professionals.
A system where the Gains or Profits are Privatized and the Losses are Socialized. The system that can only be bailed out or saved by Socialism. The system where the leaders of the Corporations are not responsible for their mistakes. The system where Greed is King and nobody including the Government can Regulate it. The system where everyone looks the other way when they see Corruption or wasted money. The system where slave wage is the ultimate goal.
1. ...debt that can''''t be repaid should be forgiven and forgotten.
2. Wealth does not come from spending, or even saving, but from investing.
3. No wealth is to be passed on from one generation to the next ...
4. There is to be no concentration of wealth. Ultimately, the world''''s riches belong to us all, not to a select few.
Posted by swin5 at 06:03 PM : Nov 10, 2008
You may have taught physics, but clearly you flunked economics.
1. Forgiving debt is the same as printing money - it will cause inflation. At the scale of hundreds of billions of dollars of debt, forgiving it would be catastrophic.
2. Wealth comes - SHOULD come - from WORKING to earn it. Produce a good or a service, and you are making a positive contribution to society and you should be rewarded. Investing in the capital to make this work possible is secondary.
3. So, you don''t believe a farmer should leave the farm to a son --- just let the government tax all the land away? BTW, what happens to the farmer''s widow...?
4. See 2. above. Wealth goes to those who EARN it.
Yes, I know. It comes from the Bible - YOUR version of it.
A system where the Gains or Profit is Privatized and the Losses is Socialized. The system that is bailed out by Socialism. The system where the head of the Corporations are not responsible for their mistakes. The system where Greed is King and nobody including the Government can Regulate it. The system where everyone looks the other way when they see Corruption. The system where slave wage is the ultimate goal.
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