+1 to both NakedPuts and jalmy8
iamemmittsmith Wrote: ------------------------------------------------------- > Fed’s terms were very good on the AIG paper. We > would’ve been inches away from the precipice if > the Fed hadn’t stepped in and provided short-term > funding. This isn’t a bailout people. > Shareholders got obliterated in this deal. This > isn’t the gov’t bailing out the big guy. it’s the > gov’t providing short-term liquidity to a > temporarily cash strapped company with billions > upon billions of dollars of attractive assets. > good job Fed. we would’ve been down 1,500 points > on the Dow if AIG had filed bankruptcy. The real question is, when are you and Jerry Jones gona get together and put together a one year contract? It’s tempting…isn’t it?
Did anyone actually read the Fed release? If not here you go: Press Release Release Date: September 16, 2008 For release at 9:00 p.m. EDT 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.
Unfortunately, the NFL pension owned fannie and freddie preferred so i’m working out in gainesville this fall thinking about a return in December to a playoff contender.
soxboys21 Wrote: ------------------------------------------------------- > I see it as the lesser of two evils: IF AIG were > to go bankrupt, I think that would cause a > worldwide meltdown. > > I don’t like the FEDs actions, because now it > shows other corporations that they can take on as > much risk as they want, because the FED will be > there to bail them out… > > Just my opinion… AIG is down 94.4% YOY. Who on earth would consider covereing the last $2 a bailout?
Bailout?? i’m just doing some back of the envelope math here but all of the “big guys” at AIG who have stock options and own most of the company just saw their cost basis rise 5x in this supposed “bailout.” And with AIG in the 30s for most of this year these guys will not have stock options in the green until AIG hits 150. Please someone help if i’m off here but this sounds like anything but a bailout.
definition of a bailout from web dictionary the act of parachuting from an aircraft, esp. to escape a crash, fire, etc. 2. an instance of coming to the rescue, esp. financially: a government bailout of a large company. 3. an alternative, additional choice, or the like: If the highway is jammed, you have two side roads as bailouts. –adjective 4. of, pertaining to, or consisting of means for relieving an emergency situation: bailout measures for hard-pressed smallbusinesses.
"I don’t like the FEDs actions, because now it shows other corporations that they can take on as much risk as they want, because the FED will be there to bail them out… " You are aware that senior management is being fired? What more can happen to a senior executive of some corporation? “Imagine you get into a car accident and uh oh! your insurance isn’t going to pay out, and oh by the way, the other guy’s neck hurts and his lawyer is calling. Your apartment building has a fire, but whoops, turns out the building doesn’t have insurance anymore, and the company that owns it wasn’t doing so well to start out with.” Nobody did this because the claim-paying ability of AIG was in doubt. If AIG filed for Chapter 7 tomorrow, substantially all the claims would be paid. “it’s the gov’t providing short-term liquidity to a temporarily cash strapped company” It’s $85B!! Short-term liquidity to a cash-strapped company?! This is like calling your father-in-law, “Uh, Dad, I was wondering if you would lend me a little money as I am a little short before payday?” “Sure, son, how much do you need?” “Uh, how about $487,000?”
haha - well put JD
Look even if the deal for AIG goes ahead, I’m glad Bunning is doing this. We have to put a stop to the FED’s power of bailouts going forward, otherwise who knows how far this will go. We’ve got WAMU, WB, autos, and maybe airlines down the road. I mean what the hell? We’ve got to stop this now. ALL BAILOUTS need to be approved by CONGRESS and then receive the President’s stamp of approval.
So JD, you are in favor of letting AIG go under and are fine with assuming the ramifications that this would have across the entire financial system? Yes, i would call a 2-year loan a short-term loan. And the entire function of our gov’t is to ensure financial market stability. Letting AIG go under would have been another step towards crumbling financial markets.
Almost all of AIG’s subs are in fine shape, and have plenty of claims paying ability. Plenty of insurers and investors are ecstatic to write their brokered specialty business, picking off their premiums w/out having to buy their balance sheets or hire their employees. Other less broker dependent lines will be sold to other carriers. AIG is mostly commercial, not personal lines, by the way, and remember it was the financial products company that got them into trouble, i.e. downgrades triggering the collateral requirements, not standard P&C.
An interesting thing to look at is the difference between this bailout (or whatever) and the Chyrsler bailout in 1979. Among other things, in 1979 loan guarantees were given to Chrysler by a vote of the Senate not just by the Treasury Secretary working out a deal. The whole issue was subject to public debate and Senators subject to re-election made a decision. I haven’t read up on this lawsuit yet, but this is a terrible usurpation of legislative authority. Rather or not this should be done, it shouldn’t be done by the executive branch behind closed doors.
Yes, the car insurance example was poor but the easiest to explain. The real risk to the consumer would have been defaults on the life and annuities they’ve written.
iamemmittsmith Wrote: ------------------------------------------------------- > So JD, you are in favor of letting AIG go under > and are fine with assuming the ramifications that > this would have across the entire financial > system? Where in my response did you read that? > Yes, i would call a 2-year loan a > short-term loan. Actually, you called it “the gov’t providing short-term liquidity to a temporarily cash strapped company” which is what I object to, not “short-term loan” > And the entire function of our > gov’t is to ensure financial market stability. There is no one who has passed third grade except you who believes that. > Letting AIG go under would have been another step > towards crumbling financial markets. So?
JD, your $487,000 number is an exaggeration. You have to compare the AIG loan amount to the assets of the company. Using AIG’s book value of equity (granted this is likely too high based on future write downs of Tier 3 assets) as of 6/30, $85bln is about 1x times book equity.
Yeah, that’s about right. It’s like calling up your father-in-law and asking for a loan of your net worth because you have a Cash-strapped, short-term liquidity problem. I stand by my $487,000 number.
JD, so what would your solution be then? If you aren’t in favor of $85bln what would you do? Evidently the people involved thought $85bln was the number needed and anything less would promote AIG failure. What is wrong with using the term “short-term liquidity” when referring to a 2-year loan? AIG is equity strapped no? You don’t think the purpose of the Fed and the Treasury is to ensure financial market stability? What do you think they do then??? Sure the Fed wants to fight inflation but the overriding goal is…drum roll please…to promote financial market stability so that the US doesn’t turn into the next Zimbabwe. It seems apparent that you believe a depression is an acceptable outcome and you, like many who frequent message boards, simply want to complain and attack others without providing any real soluations.
FYI, the goal of the Fed, from their website, is this: supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system maintaining the stability of the financial system and containing systemic risk that may arise in financial markets providing financial services to depository institutions Sorry, according to you, i must be in the 3rd grade for believing the Fed’s mission is what they say it is.
iamemmittsmith Wrote: ------------------------------------------------------- > JD, so what would your solution be then? If you > aren’t in favor of $85bln what would you do? Where did you get that from? I never said anything remotely like that. > Evidently the people involved thought $85bln was > the number needed and anything less would promote > AIG failure. > > What is wrong with using the term “short-term > liquidity” when referring to a 2-year loan? AIG > is equity strapped no? > I don’t know what “equity-strapped” means. The phrase was “the gov’t providing short-term liquidity to a temporarily cash strapped company” > You don’t think the purpose of the Fed and the > Treasury is to ensure financial market stability? Where did you get that? I’m not a total believer in that concept but Fed and Treasury sure are. > What do you think they do then??? Want to take a test on it and compare scores? > Sure the Fed > wants to fight inflation but the overriding goal > is…drum roll please…to promote financial > market stability so that the US doesn’t turn into > the next Zimbabwe. > Uh, no… I think you’ve been listening to Ben too much. > It seems apparent that you believe a depression is > an acceptable outcome and you, like many who > frequent message boards, simply want to complain > and attack others without providing any real > soluations. Very silly. Actually, I don’t necessaily object to the decision here except that it is deeply ugly and not in keeping with any sense I have of the Constitutional framework of our gov’t. It’s very likely that there were no good solutions and just letting it burn was more obnoxious. However, a) Congress didn’t object to the agency bailout though they should have. Congress is in charge of handing out money like this and needed to assert itself. Which then led to King George sending his minions off without Congressional authority to do this. I hate that. b) Someone needs to tell us about how bad it would be to let AIG fail. Chapter 11 sure as heck doesn’t mean that people don’t get claims paid. How bad could it be that AIG counterparties need to wait to get paid? The “ew, ah AIG has lots of trades doesn’t do it for me” So what? c) How much more of this can we do?