Mother of all bailouts: $85 billion to AIG
There’s really only one thing to say about tonight’s announcement that the weasel feds have changed their minds and will fork over $85 billion to rescue troubled insurer AIG:
(*$&^(&)%(&)*(^&*%&@!!!@#^@!!!!!!!
I listened to a lot of foolish people praising the government earlier today for not giving in to bailout pressure.
I was not one of them.
Why? Because anyone who has watched the natural progression of stimulus-palooza/Fannie Mae & Freddie Mac-mania/Bear Stearns knew that the shoe would drop.
And drop it has. Like an A-bomb:
In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.
The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.
Without the help, AIG was expected to be forced to file for bankruptcy protection.
The need for the loans became necessary after the major credit ratings agencies downgraded AIG late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.
Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and AIG’s request for help from the Fed of just a few days ago was rebuffed.
“Unthinkable?” Hardly. All too predictable, actually.
They can’t say no.
***
Watch out: Here comes Washington Mutual looking for its handout.
As usual, Barney Frank has it bass-ackwards:
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said Mr. Paulson and Mr. Bernanke had not requested any new legislative authority for the bailout at Tuesday night’s meeting. “The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ “ Mr. Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”
The decision was a remarkable turnabout by the Bush administration and Mr. Paulson, who had flatly refused over the weekend to risk taxpayer money to prevent the collapse of Lehman Brothers or the distressed sale of Merrill Lynch to Bank of America. Earlier this year, the government bailed out another investment bank, Bear Stearns, by engineering a sale to JPMorgan Chase that left taxpayers on the hook for up to $29 billion of bad investments by Bear Stearns. The government hoped at the time that this unusual step would both calm markets and lead to a recovery by the financial system. But critics warned at the time that it would only encourage others to seek bailouts, and the eventual costs to the government would be staggering.
Yes, we did:
I warned from the start of stimulus-palooza that we were headed in this direction. Both political parties support these massive government interventions–from empowering judges to meddle with private contracts to backing billions in mortgage securities. This isn’t the last step. It’s the first. And you know who will end up getting screwed: The responsible and the frugal.
***
The Fed’s statement tonight:
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.
The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
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 firm’s 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.
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- Bjorn Tipling » Blog Archive » What I find amazing beyond anything…
- United States Takes Over AIG » The American Mind
- The Rude News » Blog Archive » Democratic Slush Funds: Our Homes
- REVOLTING: Steal from the poor to give to the rich | The TIW Blog
- WunderKraut » Blog Archive » Where’s My Government Bailout?
- Which is why we need strong regulations… and don’t need McCain! « Cowardly political musings…
- “Epic Selloff” • UPDATED: So Much For Fiscal Responsibility « Gunservatively!
- Michelle Malkin » Obama and McCain both support $25 billion automaker bailout
- Webloggin » Update: McCain Called for Reform in 2005 - McCain Calls For a 9/11 Like Commission to Investigate Wall Street Failures
- Regulation…who did what and when? UPDATE « Mcnorman’s Weblog
- Michelle Malkin » Why Henry Paulson must be “contained”
- Michelle Malkin » Dear Congress: Put the gun down now
- Michelle Malkin » Wasn’t the bailout supposed to calm the financial markets?
- Buck Naked Politics
- Michelle Malkin » AIG’s reward for failure: Another $30 billion in taxpayer-backing
- Invest in the Best, not the Worst « Frustrated with Politics
- So much President Obama taking a stand against Bush’s failed policies, eh? Another $30 billion to AIG | Fire Andrea Mitchell!
- Michelle Malkin » AIG: Ain’t it gag-worthy?
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All I know is, if I were a major shareholder in Lehman, I’d already have every lawyer I owned preparing the discrimination lawsuits.
I don’t know if any of you have seen this over at HotAir, but here goes:
The New York Times reported this five years ago:
More here.
The ROI sux! congress! ENOUGH!!
We have been watching the Nationalization of the Private Sector right before our very eyes. The death of the American Spirit. Don’t worry. The Nanny State is here. It’ll even pay for American Spirit’s funeral. And change everyone’s diaper.
The only rejoicing in Mudville is Geo. Soros & his minions who’re probably sporting wood over all this gub’mint transfer of wealth.
And what are we hearing over and over again this morning? “Too big to fail, too big too fail”. BALONEY. I’m sick and tired of the Fed throwing MY money at these companies run into the ground by poor management and Democrat policies…and don’t get me started on Rep. Frank. Why is he still in Congress? Wasn’t he running some male prostitution ring out of his apartment or something? WHY DO WE KEEP ELECTING THESE MORONS???? He suggests that this proves free markets don’t work…what an a$$. What free market? And Pelosi wants to hold hearings now…wonderful. Why don’t you start by throwing the Dems running Fannie and Freddie in JAIL, Nancy? Why don’t you subpoena former Clinton admin officials who put the rules in place that allowed this crap to take place?
What a joke. The slow march towards Marxism just took a giant step forward the last few days. Anyone know what Australia’s like this time of year?
I don’t claim to be a financial sophisticate but I am an insurance underwriter, so I probably pay more attention to this than the average Joe who is rightfully indignant over another bailout. But there are lots of problems with this beyond the horror of another bailout.
First, AIG probably had relatively little exposure to the hurricanes because houses and cars aren’t much of what they do. They might have some reinsurance exposure, backstopping the companies that do write homeowners’ and auto policies, but little direct exposure, certainly nothing like State Farm or Farmers, etc.
Now as I understand it, AIG still has to pay off the derivatives and credit swaps, right? So that’s going to eat the bail-out money.
They have to pay this back over two years, right?
How are they going to do that? I hope they aren’t going to do it with more derivatives and credit swaps. If they do it with their core business, insurance, prices for everything, every kind of insurance are going to go up because AIG has a finger in every pie, either directly or through reinsurance.
Increasing prices is a good way to decrease sales, so I don’t see how they are going to sell their way out of this.
Finally, oh dear God in heaven, the federable gummint owns 80% of AIG? If you haven’t had exposure to them, I will tell you that the corporate motto I made up for them, harking back to the Orson Welles commercials for Paul Masson wine, is: We will pay no claim before it’s time.
And the other one was, “We’re AIG, we don’t have to.”
AIG service has always been good when they are taking your money, and always awful when it came time to give any of it back.
The reaction that I let escape me this morning was just a shake of my head. I’m disgusted, although I suppose that AIG’s impact upon failure would be so huge on the entire world that, had we not step in, China, the EU, or Dubai might have. Still, I’m not thrilled that $290 of my taxes have to go to this loan.
The reaction inside my head was not unlike an image from a movie. Think about Happy Gilmore at his first PGA event when he swings and misses the ball on its tee…
The Housing Bubble !!! Free Homes for all. The next entitlement: Free College Education for ALL. It’s no surprise that our country is going “Belly Up”. The money is running out for all these entitlements. It’s time to get back to reality and personal responsibility.
– Interesting perspective as balance. Thanks.
oy.
Concern remains for those “and others” with massive petro – dollar interests. Recent introduction of yet another shell game “sharia finance” in this chaotic mess does not bode well.
Interesting, another BAILOUT… Caught some of the CNBC talk on this yesterday… One talking head said most of AIG under written policies had been made in EUROPE… His suggestion, EUROPE should pass the hat for the BAILOUT, since most of the POLICIES were written on EURO INTERESTS… I guess no one in TREASURY knew about that HUH???
Whoops… here’s the link.
Michelle, how stupid can you be? There is still plenty of cash to rob from the American people before the Great American Experiment goes belly up. Why would Democrats and their RHINO enablers want to leave money on the table? There are still Swiss and Grand Cayman accounts to fill, and Chucky Rangel has yet to sate his hunger for more and more. Come on girl, take off your blinders. There’s still a lot of cash to be stashed.
In all seriousness, we need a real special prosecutor to begin criminal proceedings into the activities of Congress and employees of these financial entities over the last 16 years. Heads must roll and not just the little guys. I want to see senior Democrat and RHINO politicians “frog marched” (as the Dems like to say) to Federal prison for long terms, and their stolen taxpayer returned to the Treasury.
taxpayer dollars…….
There is something amiss here in the grand “scheme” of things. Our government is bailing out companies who are billions of dollars in debt, yet bashing American companies, such as the
“evil” oil companies that are turning a profit and not laying off employees. Maybe I need to check my paranoia, but it is almost as if the government wants big oil to fail so that the feds can own them.
These companies who are turning a profit should be celebrated instead of trashed.
Something is terribly, terribly wrong in this country right now.
Where the hell is all this money coming from? Between the war, endless bailouts, and the usual out of control spending I cant believe that there is ACTUALLY enough cash!. Or is it as I suspect? Endless credit with no actual money backing it? Here is my question. When it all comes tumbling down who is going to bail out the US? Crickets chirping.
I watched Glenn Beck interview several financial analysts last night and by the end I was physically ill. This is incomprehensible. There is absolutely no accountability. None. No wonder we are in this mess. It is a free-for-all drunken run for the money with politicians leading the way. The American people have got to lower the bloody boom on these guys now.
Man, I’m still freaked out………. serenity now, serenity now……
I’m waiting for my first dividend check
Where do I sign up for MY bailout. My industry, Real Estate (unfortunately), isn’t doing so well right now. I demand a Billion dollars now! OK, I will settle for %500 million if you throw in a few cases of beer.
That’s $500 million. See, I am so upset they need to act fast!
Hard to believe there are still people who don’t think we are in a severe recession. Maybe they believe th bogus calculations of the Feds. If the economy is not in the tank, explain how a huge company like AIG can go broke.
Yet we have politicians who really don’t care. No wonder an outsider like Palin is so popular. She is not indebted to the Bozo’s that have been destroying our economy.
I love how the so-called capitalist keep calling for the Government to bail out failed corporations. They don’t do their job, they should fail and let the smaller more efficient companies take their place. That is how the market, left alone, corrects itself.
Even Kramer is so desparate, because he has been costing his listeners dearly, that he wants the government to do what these failed corporations could not do. Difference is the Feds can print more money, thus stealing the assets of everybody in America.
What Kramer et al, will do is make sure everybody goes down the same rat hole as Wall Street.
This is because we are not in a severe recession. The economy has slowed down but not contracted.
Which exect calulations are bogus?
Because they made crappy business decisions. You don’t have to have a bad economy for that to happen.
exect = exact ugh
the only light at the end of this tunnel is that MAYBE these blue state dems will see the socialists for what they are. new york, connecticut, new jersey, california, are all teetering on the brink of financial meltdown. they too bet the farm on a never ending real estate/speculators market, and passed out bonuses and payola to their friends and relatives and now the governments of these solid democrat bastions are all facing bankruptcy. when michigan and ohio bet the farm on the uaw, they lost and they too are trying to get bailouts. florida, nevada, and arizona which used to be solid red states let the fast money libs show them the way to riches, and they are being gored by that mantra. SOCIALISM HAS NEVER WORKED, AND GET RICH QUICK SCHEMES ALWAYS BLOW UP AND LEAVE THE PRUDENT TO CLEAN UP THE MESS. THINK NASDAQ. conservative financial policies like you can’t spend more than you make and a penny saved is a penny earned have always been the secret to financial security.
I am NOT BUYING that we MUST make a decision in 3 days ELSE the WORLD MARKETS collapse. We are in a vortex, and throwing good money after bad does not close the vortex. It makes it bigger.
IF AIG was a bargain, they would have gotten the money else where. I work in systems and in banking. I bet if you look deeply into the operations of AIG, you will discover 98 percent waste and idiotic managers who only care about their own skin.
Let them fail, then once that vortex closes, the market place can correct the damage.
Durangodarlin @ 9:35 am
Bingo! The oil companies are making a profit and the politicians call them greedy. The financial institutions go into bankruptcy and the politicians bail them out.
Guess whose providing more money and jobs to [politicians?
Quit whining and throw the bums out! Do your homework, don’t wait for the general elections, vote the bums out in the primary elections! The only way they get the message is to keep them out of office!
BTW its good to see that the DNC response in congress is to blame bush and hold investigations to blame even more on bush.
I bookmarked that link yesterday because of it’s timely significance. I’m disappointed the McCain camp hasn’t capitalized on that information by updating/replacing this vague ad.
McCain’s obdurate paradox is evident in this video taped segment:
Vienna Ohio he stated:
How about the GDP, which does not take in consideration, that the Fed creates money with bailouts and rebates How about the GDP being measured in a dollar that has weakened by 30 percent in the last decade? How about a fictitious view of macro-economics that is just contrived (see the Von Mises society)?
How about the ever changing formulas for CPI that lowers the real inflation by 50 percent?
How about the DOW measured in dollars being exactly where it was a decade ago, even though the dollar has dropped 30 percent, and compared to the cost of gold (our former standard), the Dow has fallen a whopping 65 percent.
Believe the govt numbers if you want, but then explain to us how companies like AIG and Lehman can go belly up.
You mean the business decisions that assumed the ecomony would continue to thrive? Those business decisions?
Becuase of bad business decisions. I agree things aren’t great, but I think you are over blowing things a by quite a bit. This “adjustment” has been coming for years. The market has been overpriced for at least a decade. And what wacko decided 750,000 was a “good” price for a house, even in california?
Partialy. They also banked on property values that were vastly overpriced. The whole mess was caused by smoke and mirrors in hundreds of thousands of seperate business deals all coming to a head at once. We can’t point to any one person of party and say its thier fault because we all dug this hole together.
Exactly my point. Do you want these people buying up stock for pennies on the dollar to then have them on a controlling stake when the economy rebounds? I’d rather not.
Hold those accountable for what happened, in the meantime be glad our government had enough foresight to prevent this from happening, and hopefully will have enough in the future to prevent this mess from happening again.
The Fed calls it “Bailout”, like their helping, but is it really the nationalization of certain financial and loan industries?
Now they can dictate the specifics of loans: to whom; where in the country; building specifics; interest rates; income specifics; default specifics; insurance specifics, and on, and on.
Didn’t Reagan say those are the most terrifying words in the English language?
I work as a systems architect for a major bank (who actually is doing well, but will remain nameless). So I know the rules and the risk determination. Most of these came from the federally chartered monopoly called Fannie Mae.
Nowhere is there a rule for overheated prices. It is not part of the risk determination. I call this the California recession, because that is where the problems started. Prices went up based upon the Bigger Fool theory. No matter what one pays for a house, a Bigger Fool will come by and pay more (and of course get a loan thanks to Fannie Mae).
Banks only look at the appraised value, which of course went upward quickly just like the loans. They ASSUMED the appraised value was what the house was worth. My house was appraised in NC at 330,000 but never was it worth that much. I was happy to 275,000 for it.
This was predictable and avoidable and I have been ranting about it for 4 years now, yet people have been avoiding facing the problem (till of course it is too late).
Simcoe hit on a VERY important point. These bailouts come with a price, and that is government control. Democrats must be loving this. They get more control over our lives with each bailout.
There should be NO bailouts of ANYTHING!
Not exactly prevented. Recent rapid gains in Arab petro dollar profits make it possible for them to take advantage of these bail-out assets (assets which can effectively compromise security interests) suddenly available on the market even when being sold at market rates.
The bigger story here is the BS way Pelosi and Co have gone on the attack demanding an investigation of Wall Street. They want to divert the real issue that needs federal probing and that is Congress’ sweetheart deals made to keep Freddi Mac/Fannie Mae keep the money flowing to them….
“The most ethical Congress ever assembled”. Eat your words Nancy!
“They” don’t know what the dose of poison in the system is now. They have no idea. How can I say that? Hunch, based on observations of the public reports. Look at Warren Buffett’s Berkshire experience in trying to digest an earlier take-over of a huge re-insurer: General Re. It took *years* for Buffett’s team to understand, value and unwind the derivatives contracts.
And who are “they”? — We don’t know. Where’s the transparency? This is PUBLIC MONEY, there must be transparency.
That’s what “Sharia Financing” means in part. One part that it IS a secret cabal of insiders making these deals. The second part is in indication of influence by shrewder Arabs who have a cultural inclination to being secretive.
Still — the poisons in the mess are beyond even the sight of any one.
I came across this article and found it interesting.
Taxation without representation is tyranny. (Watchword of the American Revolution.)
James Otis
Waste no time with revolutions that do not remove the causes of your complaints but simply change the faces of those in charge.
Francesco Guicciardini
I perceive that, in revolutions, the supreme power rests with the most abandoned.
Georges Jacques Danton
Every oppressed individual, class, race and group begins to form a mental picture of a revolution.
Alexander Malina
In a time of universal deceit – telling the truth is a revolutionary act.
George Orwell
On Jul 1 1998, the Dow was at 7,842. On October 1, 1999, the Dow was at 11,497 a 50% rise – not too shabby. Since then we’ve had 9-11 and the current multi-year financial melt down Fannie, Freddie, Lehman, AIG, etc. and today the Dow is testing the floor in the mid 10,500- 10,600 range – a loss of roughly 10% off recent highs. It may go back to those 1998 levels during this crisis it may not. Like all declining markets including housing, internet stocks, etc. the prices will drop until the smart money decides they’re a bargain that won’t last and they start buying again. We’re in for one hell of a ride but this is a purification process that capitalism breeds and needs. The LAST thing we should do though is put more regulation (liberals code word for “control”) and bureaucracy into the mix. Increasing government spending and adding taxes now will only make the crisis that much worse Sen Obama. The sky isn’t falling although individual comanies and workers are getting flattened. An overheated debt driven market is correcting itself – AS ALL FREE MARKETS DO. By letting the worst offenders off the hook with government bail-outs we’re diffusing the powerful purging process of the market. Discipline in markets is a result of fear and pain – not oversight but gov’t bureaucrats. Lehman never reported a loss in it’s 158 years and they have thousands of government reporting requirments, hundreds of regulators and CPA,s and consultants out the wazoo all “paying attention” and went from “fine” to bankrupt in just a few quarters. Go read their SEC filings.
It’s a beautiful system (capitalism) when allowed to work on it’s own.
Headline: Today 94% of Americans who wanted to work went to work. 95% are paying their mortgages on time. That’s an “A” where I went to school and come to think of it, I think (I hope) John McCamnesty meant exactly that yesterday when he talked about economic fundamentals. Although I doubt it.
There was yet another Republican who exhibited leadership skills and forward-thinking when it came to Freddie Mac and Fannie Mae. Please read this. And note that Obama’s campaign didn’t even bother to research AIG’s acronym. Lazy.
I find myself wondering why voters would expect to fix a broken system by tinkering with that same system?
It’s kind of like putting a new carburator on that 1976 Ford Granada that’s up on blocks in the backyard.
30 pcs, lining up bulldozers to stop an avalanche comes to create an avalanche of bulldozers. The article you linked two posts back talked about creating a super-agency to focus on systemic risks. Whoa!
The way reality works is that the worst systemic risks can not be predicted, like the Providential assistance we all pray for day-by-day. Market systems always aggregate power unto unstable tops of mountains, whether those systems are highly regulated, communist, or capitalist.
Very severe market busts are unavoidable.
The best we can hope for or achieve is this — to have a system that is honest and fair, that helps people learn to be good souls, and to take on adversary and radical change of fortunes with a good heart, and justice for all malice towards none. Only one set of honest weights to use on every scale.
If that sounds pedantic and hoary, then it is the reader’s ear that is sad with woe and poisons of the day, for it ain’t. It is light and joyous, the Liberty Bell clanging without a crack. Go get a happy ear and reread it.
I didn’t say I agreed with everything in the article. I posted it for those among us who don’t have enough information about this debacle and are searching for it. Besides, I think you would find that I am the last person who thinks more goverment intrusion is a good thing.
Yes, I am aware of how reality works. I live in it, after all.
Yes. I concur.
I concur.
Why so snarky?
…..Lemme see;
1. I’m 64 years old, not on SS,unemployed over a year, can’t find a job other than Walmart greeter, no unemployement, paying my own healthcare($1,079.00/mo), kid in college($2,265/mo).
2. House has dropped $100K in value over the last 2 years. Probably couldn’t sell it anyway, the RE market is shot.
3. My IRA has dropped $100K in the past year.
4. Have MM account with Countrywide.
5. Have CDs with WaMu.
6. Have my insurance with AIG.
7. Live in Jersey, $12,000 per year in property taxes and the state is bankrupt($14,000,000,000 in debt). Needs a BAILOUT.
8. My mother-in-law lives with me.
…I mean W.T.F. is goin on. I’ll tell ya my take. What do large government bureaucracies(like IRS, SS, Medicare etc), hugh corporations(like GM, Ford, Lehman, Merrill Lynch, AIG, WaMu, Countrywide) and the Catholic Church all have in common???????
They are all run by old, ineffective, head in the sand, inept managers who are surrounded by ineffective exectives and all of them operate in CMA(cover my ash) mode daily while striving to fill their own pockets. You may say, where the hell did the Catholic Church thing come from? Well, I was very involved first hand for many years and I witnessed the ineptitudness first hand.
Bottom line is, they are all bloated behemouths who by their very size are complete failures financially. Bigger is not always better.
30 pc — wasn’t trying to be snarky. Thought of it as poetic.
I like the post after yours.
Hey Johnny — I’m zed in IRA, zed in job, 915 a month medical ins, no money market, no savings, down to my last rolls of state quarters which I saved for years, and then … who knows.
But my Mother-In-Law has her own place, so maybe I’m better off than you.
Thanks bvw, I just needed to vent. I know I’m lucky compared to alot of people.
Well, I’m not without resources, and have my health and a great wife, so I’ll hit the ground like a cat on my feet, even though right now the liquid-assets/cash-flow trajectory is like that reverse spinning altimeter needle old movies show.