You can't make this stuff up

haha i beat you to it, i guess you read the Drudge Report since thats the link he posted. But I think the sheer mass of AIG and its impending doom on Wednesday prompted the Fed to do this. I think well over $85 bn would evaporate tomorrow if that insurance giant collapsed. I mean this may not even technically a bailout because the Feds are giving them a loan and getting 80% of the stock as well. Does anyone know if the stock is collateral or like a fee?
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So what do you do?
-I work for an investment banking firm.
Oh okay; you are like my brother, he works for Edward Jones.
-No, a college degree is required in my profession

Scale.

You scooped me!

It just doesn't make any sense to me. They must just think the world will absorb as many worthless dollars as they're able to print. Bear Stearns, Fannie and Freddie, now AIG - does anyone in the world believe we have enough money to cover these tabs? At what point do the Chinese and the rest of our major lenders raise the bullshit flag?

This country is fucked...

I'm afraid I have to agree.

By the end of all of this, the government will be stretched so thin that there won't be anyone to bail the country out of credit card woes.

Nothing is too big to fail, or shouldn't be. Essentially the government will have an 80% share in one of the largest private insurance enterprises worldwide. This is completely unprecedented for a purportedly "free" and unhampered market.

The Federal Reserve, with its abhorrent interest rate policies, and the subsidizing of home ownership for decades has seriously screwed up incentives in the marketplace. When people point to the gross mismanagement of Fannie, Freddie, and the boards of large banks, the real scrutiny rests with the government, who orchestrates completely bogus fiscal policy and the Fed, which has prioritized consumption over any sort of fiscal restraint for years now.

And now the Dems and Republicans want even MORE regulations on the financial markets! I'll be.

As I understand it, the Fed now owns 80% of the company. The stock is NOT collateral. AIG is now a wholly (or almost wholly) owned subsidiary of the Federal Reserve Bank.

communism!

So we just got done with the Fannie and Freddie and now AIG is becoming the monster...

I think a lot of you are underestimating the consequences of AIG failing. This is a huge company, with massive derivatives exposure. If AIG were allowed to default, confidence would further erode and AIG's counterparties would be impacted dramtically.

I think Paulsen and the Fed made a prudent move here. They've showed through the Lehman example that they will not bail out any old companies and in both Lehman and AIG, shareholders have taken big losses.

If any of you were around during the Asian Flu about ten years ago, you'll remember some fairly prominent voices in the wilderness (Warren Buffett, Jim Rogers, et al) warning about the derivatives disaster that was inevitable.

This is the Fed sweeping shit under the rug. There is NO justification for not allowing AIG to fail. Why don't more people realize that this HAS to happen for the ship to eventually right itself?

I don't care who you vote for, taxes are going up as a result of all this shit.

It's called inflation. You think the Fed had an EXTRA $85 Billion just laying around? Shit no. They're printing that shit. I don't think anyone even pays attention to M1 anymore, the figures are so distorted. And they called ENRON crooks...

Personally i think that the fed's bailing out of any private sector (read: not a loan) is stupid and degrades the free market capitalism that this country was founded on. really the loan to AIG is not bad but the 80% stock share by the federal government is.
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So what do you do?
-I work for an investment banking firm.
Oh okay; you are like my brother, he works for Edward Jones.
-No, a college degree is required in my profession

The implication that the Federal Government now owns an 80% stake in AIG is incorrect. The Federal Reserve Bank owns the stake. This is an important distinction. The Federal Reserve is no more federal than Federal Express. It is a private bank.

To think that the government now owns AIG would mean, by extension, that any profits (however unlikely) would flow back to the government and trickle down to the taxpayer. That is NOT the case. Any profits from AIG are retained by the Federal Reserve, a private company.

Any losses, however, are paid for by the U.S. taxpayer. It is an absolute no-lose for the money-printing FED and an absolute no-win for you and I. You'll begin paying for this travesty tomorrow morning at breakfast or on your drive to work (if you still have a job) through the instantaneous effects of inflation.

You're welcome, Bernanke. Thanks for being a dick and bailing out this POS, but saying no to our lousy quarter of a point today.

Yea sorry about that oversight, even so this situation that you described is 100x more fucked up, there is no upside for the taxpayers, only the Federal Reserve
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So what do you do?
-I work for an investment banking firm.
Oh okay; you are like my brother, he works for Edward Jones.
-No, a college degree is required in my profession

in any other case, i'd be opposed to the fed stepping in. this, however, is different. derivatives have made our financial system way too intertwined. aig is counterparty to almost ~$400B of credit default swaps. the systemic damage of aig going bankrupt in a matter of days would be unbelievable.

though we're quick to point the finger, "wall street" is a big reason our country is in this mess right now.

Is to rip the band-aid off all at once. Let the failures fail, and get back to a sane monetary policy. Right now the gold standard is sounding pretty good...

Im one of the biggest proponents of free market capitalism but theory and application are very different in a highly leveraged intertwined global economy. No one on this board (or 99% of WS) has any idea how adverse the far reaching effects would have been had the Fed let AIG fail. The systemic risk and counter-counter party risk made this particular entity worthy of being "saved". The economy is cyclical and we are suffering from an over abundance of liquidity and a government that demanded that every own a home (regardless of their ability to put up a down payment or pay a mortgage) and now the gov is trying to solve the problem by throwing more money into the system.

Bottom line is...I like to think that the people in charge are some of the brightest people in the world and have the country's best interest in mind but I remain skeptical

Have you guys even read the terms of the loan? (yes, loan)

Basically, the Fed agreed to loan AIG up to $85 billion at LIBOR + 850bps. (!) That's about 11% interest. An in exchange, AIG gave the Fed 80% of their company - for keeps. AIG common and preferred get nothing, bonds get pennies on the dollar. AIG has about $1 trillion in assets. As I understand it, the Fed just received claim to about $800 billion of assets in exchange for LOANING $85 billion. Not to mention that because AIG remains solvent, the stock will likely appreciate over time as we come out of this mess.

In summary, this is no bailout. No taxpayer money has gone out the door. The loan is secured by the assets of AIG, and the creditor (the Fed) now controls the company. This is about as safe a loan as I can imagine. If anything, the Fed/Treasury will make a profit on this one.

I don't see this as a bailout of anyone but the American people and economy. Not only was this necessary to prevent some MAJOR carnage due to unwinding of AIG's derivatives, it probably will turn out to be a gain for the Fed/Treasury.

Stop bitching.

- Capt K

The comments here with respect to the gold standard and the debasing of the currency are inaccurate. The Fed is not changing the effective fed funds rate by participating in the AIG bailout; the FOMC will not participate. The PDCF is a stretch of the TSLF and this is essentially a huge stretch of the PDCF. The Fed isn’t taking illiquid assets contextually undervalued, rather assets under their presumed expected value.

The Fed is an independent entity within the government. Private banks elect members of regional Fed banks while the Board of Governors is chosen by the President. In any case, its role is not technically a for-profit "private" bank, but an independent government-sponsored regulatory instrument. Plus, the bank's "income" is from interest on US government securities. All profits are sent to the US Treasury after expenses are paid.

So technically Braverman, profits DO flow back to the government provided there are any left after expenses. Losses, you correctly point out, ARE borne by the U.S. taxpayer, either deliberately through taxes or indirectly through economic slowdown, inflation, etc.

QED.

Well tell that to LEH. I sat in on a public call on Monday that basically was a giant FUBAR about what's going to happen to the bank's 70 million-odd swaps/contracts that are missing a counterparty right about now. Not to mention all their other assets.

Too bad the sweet pile of Lehman's (highly undervalued) assets weren't enough to throw a lifeline to.