Even More Things I Don’t Understand…

I’m sure you’ve heard about this in some form today…

WASHINGTON/NEW YORK (Reuters) – The government dramatically boosted its bailout of insurer American International Group Inc and eased the terms of its loans to the company on Monday after an initial rescue plan failed to stabilize the company.

Under the new plan, the U.S. Treasury will take a $40 billion equity stake in AIG as part of a package of credits to prevent the collapse of what it called a “systemically important company.” The Federal Reserve is providing up to $112.5 billion in loans and funds for asset purchases.

The new package, the largest bailout of a single company, provides AIG with about $27 billion more than previously extended and will leave the government exposed to billions of dollars of additional potential losses.

“This is a one-off, created solely for AIG,” a U.S. Treasury official said of the transaction hammered out over the weekend.

“This wasn’t done to help AIG shareholders. It gives the company the room it needs in its capital structure to execute its asset disposition plan,” the official told reporters in a background briefing.

Can someone tell me why AIG is so important to Washington?  I can read the spin, but I don’t buy it.  What is the background connection?  Why are the DC dummos so torqued up about AIG?

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8 Comments

Filed under economy, government

8 responses to “Even More Things I Don’t Understand…

  1. Three words: money market funds.

    Many investors park their cash in money market funds when it is not in another form of investment; the funds are viewed to be as secure as a bank account but with more convenience and a slightly higher rate of return. The truth is that bank accounts are backed up by the government up to a certain amount; money market funds are not insured but have not lost an individual investor money until recently.

    Many money market funds buy financial instruments issued or insured by AIG. A few did in Lehman Brothers before it went bankrupt; those were forced to “break the buck”, that is, let the per share value dip below the nominal dollar a share. If AIG was to go under, many people will lose some money on paper and the resulting distrust will probably result in a huge run on the system as most begin making withdrawals.

    Bill

  2. cooper

    Yes…but why AIG? Why didn’t they get this riled about Lehman? Or Merrill….or for that matter, Enron?

  3. Yeah, what’s that saying about throwing good money after bad?? Um…

    I did a total double take when I heard this this morning, what the HELL?? Unbelievable..

    Think of all the kids who you could cover for health insurance for that, all the stuff you could buy, new teachers, etc, for a better education for kids. All the heating you could provide for old people this winter, all the food, etc. I am so disgusted.

  4. Because AIG is so damned fucking big. If it fell, the resulting tsumani has the potential to destroy the Western financial markets.

    Lehman is small in comparison. Merrill was bought by Bank of America. Enron…well, few were hurt except for shareholders and employees, some of whom were foolish enough to be both. Enron was already demonized to such a degree for its role in energy trading during the California blackouts that no politician could have survived suggesting bailing them out.

    Listen. I do not like it either. I got furious reading about the lavish spending by company execs even after the original bailout. Unfortunately, it is simply too deeply entrenched in the system to let it fail. The truly sad part is that the bailout terms do not have any measures to correct the situation, and that is why I am mad today.

    Bill

  5. Jason

    The AIG bailout is small change and means nothing to the Fed. The Fed is transparent in that it is subject to the oversight of Congress. Is twice a year not fast enough? The intent of Congress in shaping the Federal Reserve Act was to keep politics out of monetary policy. Legislation requires that the Federal Reserve reports annually on its activities to the Speaker of the House of Representatives.

    http://nomedals.blogspot.com

  6. What Bill said. AIG insures everything and everybody. If they go down…the world goes down.

  7. Insurance companies own and rule the world.

    Don’t know if this is true or not, through the grapevine and all~ but I heard the bail out was going to include a few NASCAR tracks? WTF???

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