AIG Has Already Used $61 Billion Just to Keep its Doors Open
harryh...@yahoo.com
--------------------------------------------------------------------------------
October 4, 2008
A.I.G. Uses $61 Billion of Fed Loan
By MARY WILLIAMS WALSH
The American International Group said on Friday that it had already
drawn down $61 billion of the $85 billion emergency bridge loan it
received from the Federal Reserve two weeks ago, an announcement that
startled credit ratings agencies.
The emergency loan was supposed to buy the company time to sell its
troubled assets in an orderly manner. But the sell-off has not yet
begun, and now the insurer faces the additional pressure of trying to
sell the businesses at a time when potential buyers are having trouble
borrowing money.
Moody’s downgraded A.I.G.’s senior unsecured debt on Friday and said
it might downgrade other types of the company’s debt, which could make
it more expensive for A.I.G. to borrow money and do business.
A.I.G.’s chief executive, Edward M. Liddy, told securities analysts on
Friday that $53 billion to $54 billion of the Fed’s loan had gone to
shore up A.I.G.’s troubled structured-finance unit and its securities
lending business. Another big block of the Fed’s money has been used
to support A.I.G.’s daily operations, Mr. Liddy said in a conference
call, because demand for the company’s commercial paper has dried up
as a result of the worldwide credit crisis.
After the conference call, Standard & Poor’s said it had changed
A.I.G.’s credit watch status to negative, expressing concern about
whether A.I.G. would be able to restructure with the help of the Fed,
as planned. The change indicated that a downgrade could be coming.
It was a series of downgrades in A.I.G.’s credit ratings in mid-
September that set off certain contractual provisions requiring the
insurer to post billions of dollars of collateral with its trading
partners, a catastrophic event that led to the huge federal bailout.
Since then, A.I.G. has not released any information about whether
additional ratings downgrades would lead to any additional collateral
calls.
Both ratings agencies cited concerns about A.I.G.’s rapid use of the
Fed’s loan.
“The $61 billion draw to date on the facility is much larger than we
had previously anticipated,” said Rodney A. Clark, an analyst with
Standard & Poor’s, explaining the change in outlook.
A.I.G. is required to pay back its borrowings from the Fed within two
years. Mr. Clark said that to raise the money, the rapid drawdown of
the loan made it likely that A.I.G. would have to sell off more
businesses than Standard & Poor’s had expected.
This would leave “a much smaller and less diversified A.I.G.” to pay
off a proportionally bigger debt to the Fed, Standard & Poor’s said in
a statement.
In the conference call, Mr. Liddy detailed which of A.I.G.’s
subsidiaries he intended to keep and which he was putting up for sale.
Over all, he said, the company would hold on to its property and
casualty insurance business in the United States and its general
insurance businesses outside the country. Together, they generated
revenue of about $40 billion in 2007.
In addition, Mr. Liddy said A.I.G. would keep a continuing ownership
in its foreign life insurance businesses, most of which operate in
Asia.
Other than that, he said, virtually everything else under A.I.G.’s
corporate umbrella was for sale. That would include its life insurance
companies in the United States, its retirement operations on four
continents, its aircraft leasing business, its consumer finance
business and other lines of insurance and reinsurance.
Mr. Liddy said these were valuable businesses for which A.I.G. had
already received many expressions of interest, although he
acknowledged that there was a big difference between a nibble and an
actual sale. He said that the Blackstone Group and JPMorgan Chase had
been hired to put the businesses up for sale.
Earlier, Mr. Liddy had indicated that he hoped A.I.G. would be able to
retain its life insurance business in the United States. But in the
conference call on Friday, he said that solving the problems of the
financial products unit, which dealt in complex debt securities and
credit derivatives, “has caused us a lot of pain.”
“We do intend to wind down that operation,” he said. “It is not
something you can announce on Friday and expect to do by Monday.”
Mr. Liddy said that all of the energy being expended on that troubled
unit was aimed at winding down its affairs — not getting them up and
running again. “We are not entering into any new activity” there, he
said.
In response to questions, Mr. Liddy said it was impossible to say
exactly how much money A.I.G. would have to raise to pay back the Fed
and emerge from its crisis as a smaller company with adequate
capital.
“It’s kind of a Rubik’s Cube,” he said. “We need to be very flexible”
because of the fluid economic environment.
He said that in addition to using the $85 billion Fed loan, A.I.G.
would be able to participate in the $700 billion bailout program
signed into law by President Bush on Friday. The additional help from
the Treasury might ease some of its financial burdens, Mr. Liddy
said.
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Vid...@tcq.net
> On Mon, 6 Oct 2008 07:54:30 -0700 (PDT), harryharr...@yahoo.com wrote:
> >The American International Group said on Friday that it had already
> >drawn down $61 billion of the $85 billion emergency bridge loan it
> >received from the Federal Reserve two weeks ago, an announcement that
> >startled credit ratings agencies.
>
> >The emergency loan was supposed to buy the company time to sell its
> >troubled assets in an orderly manner. But the sell-off has not yet
> >begun,
>
that money is already gone. did you see the fed upped the 300
billion, to 600 billion, now 900 billion dollars for the plunge
protection team.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKehT8Q3KSLw&refer=home
Fed Boosts Cash Auctions to $900 Billion, May Do More (Update2)
By Scott Lanman and Craig Torres
Oct. 6 (Bloomberg) -- The Federal Reserve will double its auctions of
cash to banks to as much as $900 billion and is considering further
steps to unfreeze short-term lending markets as the credit crunch
deepens.
``The Federal Reserve stands ready to take additional measures as
necessary to foster liquid money-market conditions,'' the central bank
said in a statement released in Washington today. Fed and Treasury
officials are ``consulting with market participants on ways to provide
additional support for term unsecured funding markets,'' the statement
said.
Today's steps follow a hoarding of cash by banks that sent the premium
on the three-month London interbank offered rate over the Fed's
benchmark interest rate to a record. Industrial companies are also
finding it harder to raise cash after the market for commercial paper
shrank to a three-year low as investors flee even borrowers with few
links to mortgages.
``It is pretty much all out war,'' said Christopher Rupkey, chief
financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., New York.
``They are pulling out all the stops to try and get borrowers and
lenders to meet and do transactions once again.''
Implementing part of last week's emergency legislation to shore up the
financial industry, the Fed said today it will begin paying interest
on the cash reserves banks hold at the central bank. The step should
give Fed officials greater power to inject cash into banks without
interfering with their benchmark interest rate, which stands at 2
percent.
Bernanke Speech
Fed Chairman Ben S. Bernanke's speech on the economic outlook tomorrow
in Washington should give an indication of whether U.S. central
bankers are prepared to cut the main rate before the next meeting Oct.
28-29, Rupkey said.
As part of today's steps, the Fed will increase its auctions under the
28-day and 84-day Term Auction Facility operations to $150 billion
each. The two forward TAF auctions in November will be increased to
$150 billion each, the Fed said.
Money market rates are climbing worldwide on concern the deepening
credit crisis will cause more financial firms to collapse. Three-month
Libor climbed to 4.29 percent today, the biggest premium over the
Fed's benchmark since the central bank began using a target for the
overnight federal funds rate between banks as its main tool around
1990.
In Europe, governments rushed to shore up their faltering banks as the
credit crunch worsened there. BNP Paribas SA agreed to buy Fortis's
units in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion)
after a government rescue failed, while the German state and financial
institutions put together a 50 billion euro rescue package for Hypo
Real Estate Holding AG.
International Effort
President George W. Bush's working group on financial markets, a body
that includes the Fed, Treasury, Securities and Exchange Commission
and Commodity Futures Trading Commission, said today it's working with
``market participants and regulators globally to address the current
challenges to restore confidence and stability to financial markets.''
The working group statement comes four days before a gathering of
central bankers and finance ministers from the Group of Seven major
nations in Washington.
The Fed gained the authority to pay interest on commercial bank
reserves under the $700 billion financial-rescue legislation approved
last week. The Treasury will purchase distressed assets from financial
companies under the plan.
To finance the Treasury's new plans, officials are considering changes
to federal government debt sales, including a reintroduction of three-
year notes. Any changes will be released at the Treasury's Nov. 5
quarterly announcement on sales of long-term debt.
Treasury Issuance
The Treasury also said that some of its cash-management bills may be
``longer-dated.'' The expansion in issuance is needed to ``allow
Treasury to adequately respond to the near- term increase in borrowing
requirements,'' the department said. Treasury officials last month
also started a special program of bill auctions to help the Fed expand
its balance sheet.
Fed payments on required reserves will be made at the average targeted
federal funds rate established by the Federal Open Market Committee
over each so-called reserve maintenance period less 10 basis points.
In addition to the cash banks must hold at the Fed, lenders also
sometimes place excess reserves. The central bank said today it will
pay interest on those funds at the lowest targeted federal funds rate
for each period less 75 basis points. That will put a floor under the
actual fed funds rate each day and let the Fed `expand its balance
sheet as necessary to provide the liquidity necessary to support
financial stability.''
Managing Rates
The Fed created the TAF auctions of cash to commercial banks in
December, and has continually expanded the program since then. To
prevent a surfeit of funds in the system from pushing the actual
overnight interbank lending rate below the Fed's target, the central
bank withdraws liquidity through repurchase operations.
As the Fed pumped cash through the TAF and other programs at record
levels last month, the New York Fed had difficulty controlling the
daily federal funds rate. While the target is 2 percent, the effective
rate was below that level every day from Sept. 19 to Sept. 29.
To contact the reporter on this story: Scott Lanman in New York at
sla...@bloomberg.net; Craig Torres in Washington at
ctor...@bloomberg.net
Last Updated: October 6, 2008 09:55 EDT
GW Chimpzilla's Eye-Rack Neocon Utopia
> Soon they'll be asking for more money:
>
>
They should just spin off their credit-default swaps into oblivion and let the
suckers holding them die.
--
There are only two kinds of Republicans: Millionaires and fools.
4787 Dead
>On Mon, 6 Oct 2008 07:54:30 -0700 (PDT), harryh...@yahoo.com wrote:
>
>>The American International Group said on Friday that it had already
>>drawn down $61 billion of the $85 billion emergency bridge loan it
>>received from the Federal Reserve two weeks ago, an announcement that
>>startled credit ratings agencies.
>>
>>The emergency loan was supposed to buy the company time to sell its
>>troubled assets in an orderly manner. But the sell-off has not yet
>>begun,
>
>
>This does not bode well for the $700 billion.
Fuck, that money's already pissed away. Seen the marke's today?
harryh...@yahoo.com
> On Mon, 06 Oct 2008 09:11:20 -0700, retrogro...@comcast.net wrote:
> >On Mon, 6 Oct 2008 07:54:30 -0700 (PDT), harryharr...@yahoo.com wrote:
>
> >>The American International Group said on Friday that it had already
> >>drawn down $61 billion of the $85 billion emergency bridge loan it
> >>received from the Federal Reserve two weeks ago, an announcement that
> >>startled credit ratings agencies.
>
> >>The emergency loan was supposed to buy the company time to sell its
> >>troubled assets in an orderly manner. But the sell-off has not yet
> >>begun,
>
> >This does not bode well for the $700 billion.
>
> Fuck, that money's already pissed away. Seen the marke's today?
We may be going the way of Iceland.
Lisa
Vid...@tcq.net
> On Mon, 6 Oct 2008 09:17:04 -0700 (PDT), Vide...@tcq.net wrote:
> >On Oct 6, 11:11 am, retrogro...@comcast.net wrote:
> >> On Mon, 6 Oct 2008 07:54:30 -0700 (PDT), harryharr...@yahoo.com wrote:
> >> >The American International Group said on Friday that it had already
> >> >drawn down $61 billion of the $85 billion emergency bridge loan it
> >> >received from the Federal Reserve two weeks ago, an announcement that
> >> >startled credit ratings agencies.
>
> >> >The emergency loan was supposed to buy the company time to sell its
> >> >troubled assets in an orderly manner. But the sell-off has not yet
> >> >begun,
>
> >> This does not bode well for the $700 billion.
>
> > that money is already gone. did you see the fed upped the 300
> >billion, to 600 billion, now 900 billion dollars for the plunge
> >protection team.
>
>
> >Fed Boosts Cash Auctions to $900 Billion, May Do More (Update2)
> >By Scott Lanman and Craig Torres
>
> by trying to make credit easier yet? Sheesh.
i know. but, with creative accounting, we can put lipstick on a pig.
and get those darn assets off of their books. will that help create
trust? i doubt it. no one wants those assets. can you imagine calling
them a asset, its ridiculous.
Vid...@tcq.net
just think, a few years ago they were the darling of the free market.
Phlip
> Soon they'll be asking for more money:
Please, sir. I want some more!
--
Oliver Twist
Michael Coburn
> On Mon, 6 Oct 2008 09:17:04 -0700 (PDT), Vid...@tcq.net wrote:
>
>>On Oct 6, 11:11 am, retrogro...@comcast.net wrote:
>>> On Mon, 6 Oct 2008 07:54:30 -0700 (PDT), harryharr...@yahoo.com wrote:
>>> >The American International Group said on Friday that it had already
>>> >drawn down $61 billion of the $85 billion emergency bridge loan it
>>> >received from the Federal Reserve two weeks ago, an announcement that
>>> >startled credit ratings agencies.
>>>
>>> >The emergency loan was supposed to buy the company time to sell its
>>> >troubled assets in an orderly manner. But the sell-off has not yet
>>> >begun,
>>>
>>> This does not bode well for the $700 billion.
>>
>> that money is already gone. did you see the fed upped the 300
>>billion, to 600 billion, now 900 billion dollars for the plunge
>>protection team.
>>
>>
>>http://www.bloomberg.com/apps/news?
pid=20601087&sid=aKehT8Q3KSLw&refer=home
>>
>>
>>Fed Boosts Cash Auctions to $900 Billion, May Do More (Update2) By Scott
>>Lanman and Craig Torres
>
>
> Fucking aye. A mess we got into from easy credit is going to be solved
> by trying to make credit easier yet? Sheesh.
There is no other escape hatch but to inflate. That means cheaper money
and lots of it. The ills cannot be addressed in any other way but
through more money and more taxation AT THE TOP. The stock purchase plan
_IS_ a much better way to recapitalize the banks. Instead of buying
paper that is worthless or for which there is no known value you buy the
current owners of the paper (the banks) through new stock issues. The
banks are thus recapitalized and the new owners than control what happens
in these companies. That includes executive salaries and who will be in
the executive suite.
forbi...@msn.com
> On Oct 6, 11:44 am, retrogro...@comcast.net wrote:
> > Fucking aye. A mess we got into from easy credit is going to be solved
> > by trying to make credit easier yet? Sheesh.
>
> i know. but, with creative accounting, we can put lipstick on a pig.
> and get those darn assets off of their books. will that help create
> trust? i doubt it. no one wants those assets.
My fear is that the Treasury will buy at top dollar from those who
buy their bonds to fund the purchase then the Treasury will turn
around and sell the assets at market to pay the interest on their
bonds.
Retro asked me why I didn't think this inflationary. Here's why:
All of this is just financial manuring and doesn't involve real goods
and services. Sure it will make it hard for the government to do
its business going forward but that's another matter and will actually
reduce government claims on production.
forbi...@msn.com
> On Mon, 06 Oct 2008 09:44:41 -0700, retrogrouch wrote:
An interesting proposal.
Might I refine this by suggesting social security treasuries be traded
for
stock in the banks. This would put the people in charge of retirement
funding in charge of bank decisions. People looking out for the long
term
have different decisions to make than those looking for a quick return.
Michael Coburn
The money is landing in the pockets of those that already have more money
than they know what to do with. As such it is "dead" money and is not
inflationary.