Bloody Monday ... It's Not Going To Be Pretty With News Like This

WIth the markets closing on or close to their lows on Friday, this news is like pouring water on a drowing man. In other words, this is not the sort of news that is going to bolster the market.

Fasten your seat belts, it's going to be a bumpy ride.

Adam Hewison

Co-creator, MarketClub

This from our business news partner AP.

AIG to get up to $30B more in Fed aid


AP Business Writer(AP:CHARLOTTE, N.C.) Struggling insurer American International Group Inc. will receive up to $30 billion in additional federal assistance in the fourth government rescue of the company, people familiar with the matter told The Associated Press on Sunday.

The new infusion is intended to prop up AIG _ once the world's largest insurer _ as it is expected to announce $60 billion in quarterly losses early Monday, a person said on the condition of anonymity because the discussions are still ongoing.

The company, which is considered too large to be allowed to fail, previously received about $150 billion in loans from the government, which currently holds an 80 percent stake in the company.

Under the new deal, the U.S. Treasury and the Federal Reserve would provide about $30 billion in fresh capital to AIG from the government's Troubled Assets Relief Program, or TARP. The money would be provided as a standby line of equity that AIG could tap as its losses mount, the person said.

AIG has already received $40 billion from TARP.

The new plan also calls for the Federal Reserve to take stakes in two international units, the person said.

Instead of paying back $38 billion in cash with interest that it has used from a Federal Reserve credit line, AIG now will repay that amount with equity stakes in Asia-based American International Assurance Co. and American Life Insurance Co., which operates in 50 countries.

The $20 billion to $25 billion remaining on the Federal Reserve credit line will be available for borrowing, the person said.

In order to strengthen the company, AIG also plans to combine its U.S. and foreign property-casualty insurance operations into a new unit, with a new name and separate management, the person said. About 20 percent of the property-casualty business would be taken public.

To further reduce its debt, AIG will turn $5 billion to $10 billion worth of debt into new securities backed by life insurance assets.

The decision to approve a third revision of the AIG bailout is a continued bet by the federal government that there would be even greater risk to letting AIG fail, a person familiar with the Treasury's decision told The Associated Press on Sunday.

Federal officials feared that a bankruptcy of AIG could be disastrous for the global economy, which is in worse shape than it was six months ago, the person said, requesting not to be named because the talks are ongoing. Talk of the new rescue package has been going on for several weeks, as the Treasury gained insight of AIG's quarterly performance, the person added.

AIG spokesman Nick Ashooh declined to comment on the rescue package. The Federal Reserve Bank of New York, which is handling the government loan, did not return requests for comment Sunday evening. Treasury Department spokesman Isaac Baker also declined to comment.

The company's board met Sunday to vote on the revised bailout plan.

Major credit rating agencies have already signed off on the deal, according to media reports. Without the support of the credit rating agencies, AIG would have faced crippling cuts to its ratings.

AIG has been forced to seek more help in part because of the ongoing recession and its falling stock price, now well under $1. Among its biggest problems: It can't sell assets to pay back government loans because the credit crisis is preventing would-be buyers from getting financing to complete such deals.

As of Feb. 13, AIG had sold interests in nine businesses.

In November, the U.S. government restructured previous loans provided to AIG, giving the company about $150 billion in total as part of a rescue package to help the insurer remain in business amid the worsening credit crisis. That package replaced earlier loans, including the original $85 billion lent in September, after it became apparent the insurer needed more funds.

Problems at AIG did not come from its traditional insurance operations, but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.

Shares of AIG closed at 42 cents on Friday. The stock, which traded at $49.50 a year ago, has lost nearly all of its value since the market meltdown began in September.

14 thoughts on “Bloody Monday ... It's Not Going To Be Pretty With News Like This

  1. In my opinion an attempted bailout of AIG is futile since their core business of insurance cannot survive. Who would buy an insurance policy from a company that is threatened with going under and probably will not be able to pay claims? Not me.

  2. These are drastic times, and they require drastic measures. Time to
    revive the "Boston Tea Party" mentality. Don't like the way the government is handling your money, then cut them off. Everyone needs to protest by not filing their taxes. Sound extremely radical? it is.

    But if you let the politicians handle it in the manner that they are, and that includes both sides of the isle, and you don't do something, then don't say a word when your tax base is doubled, or you find
    yourself in the street. We've had it good for a long time. We are
    now faced with a very difficult situation, and it will require action
    that we are not accustomed too or would even EVER contemplate.

    I'm not a nut case, just a realist. As citizens, if we'e not happy with
    our government, then we need to get their attention and let them know
    about our concerns, and I don't mean through the voting process. It has
    to be a process they have no control over, otherwise its for not.

    These are words you don't want to hear, but often the truth hurts.

  3. This AIG Bailout garbage makes me sick to my stomach. No, wait, the entire concept of gov't bailing out ANYONE makes me sick. Meddling politicians have no business rewarding ridiculously bankrupt institutions that got they way essentially through gambling, as Steve pointed out.

    There's no way to sugar-coat this. It's pure socialism, and I greatly fear for the direction the good old US of A is headed. Not just financially, but especially ideologically. Too bad the talking heads from the media aren't publicly asking the politicians to please show us a historical example of where bailouts successfully avoided a depression. Or show us a successful example of socialism, past or present. No, the mainstream media wouldn't dare interrupt the liberal "party" they are throwing with OUR money.

    AIG should have been allowed to fail last Sept. before the FIRST bailout. And now they're on number 4??? I can hear that familiar flushing sound...

  4. I just don't get it... news like this right at the time the dollar is at it's .87 resistance and it busts through like a rocket. Can you say 120 on the DX? Why not 200? Maybe if we print up 1,000 trillion more dollars and bail everyone out of debt, 10 dollars might buy you a nice new automobile. Perhaps the quantity theorists have it all wrong.

  5. The failing mortgages are a red herring.

    What's bringing these financial firms down, and keeping them down, is the

    $100's of trillions$

    in silly, risky, side bets, otherwise known as "swaps." They played so many games in unregulated markets that neither their balance sheets nor the Federal Reserve's balance sheets can hope to recover in less than 10 years.

  6. What in the hell? How can the situation be coming to this? How did 8% of all mortgages failing bring us to our knees? No has explained this! Spread 8% over all institutions what the heck? People are saving now like gangbusters so why aren't banks loaded w/ capital on top of government injections? Where is all the money going? How can losses keep being accrued Q after Q? How can you continue to write something down that has already been written down to the bottom?

    1. In reading the comments so far, this particular thread can become particularly heated. We are in a period when no matter what the people in power do, it will be wrong. On the face of it, one could point a finger at the banks or the insurance industry or Wall Street (or Bay Street) and say that they are responsible.

      Many people "knew" the economic turmoil that we are going through was going to happen a number of years ago. Bear markets always follow Bull markets, bubbles burst, and people always want more stuff (even if they cannot afford it). Our parents, grandparents or great grandparents who lived and worked during the depression, learned a hard lession about accumulating capital. I had an uncle who wouldn't buy a car unless he could pay for it using cash. It wasn't too long ago when the average person owed a third to a half of their annual salary on their credit cards.

      With regard to the AIG policy, I am reminded of the little Dutch boy with his finger in the dike. If the company is not supported in the near term, how many thousands of people will be out of work. How many additional thousands of people and companies and organizations will be affected when they discover their insurance has evaporated.

      Picture an over inflated balloon. One pin prick is all it takes for it to deflate. These patches that the governments are putting in place won't stop the collapse but perhaps buy us some time until a more permanent solution becomes available.

    2. one answer that came out of the Senate meetings ... 4% of Citibank is
      owned by a Saudi prince another 4% is owned by China... who the
      f.. do you think we are bailing out... if that money were
      for the morgagees it would be easy to get it to them.....


    3. AIG was brought down by several things, not the least of which are
      CREDIT DEFAULT SWAPS. If all the bets go bad, there will not be enough money to pay all the "bookies". Better start up the printing presses.

  7. This comment is from someone in the commercial insurance industry. The government ought to let AIG die. It seems unfair that the rest of us have to compete against an insurance entity that keeps getting propped up by the federal government. And they ought to rename the company to PIG because that's what they are.

  8. You people in Wall Steeet and traders of all kind of stocks should have known that this was comming and did not care. So now don't complain go and lick your wounds but what about us who did not profit from the market but have to foot the bill any way ?? Maria

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