AIG’s New Plan: Restructuring is now $150 Billion
The original $85 billion dollar package is now 70% higher, at $150 billion, Bloomberg reports.
The company also swung to a Q3 loss of $24.47 billion.
The U.S. will cut the original $85 billion loan that saved the New York-based insurer in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by AIG.
Yves Smith does a full blown analysis in the cafe.
The Federal Reserve announcement:
The U.S. Treasury on Monday announced that it will purchase $40 billion of newly issued AIG preferred shares under the Troubled Asset Relief Program. This purchase will allow the Federal Reserve to reduce from $85 billion to $60 billion the total amount available under the credit facility established by the Federal Reserve Bank of New York (New York Fed) on September 16, 2008.
Certain other terms of the existing New York Fed credit facility, established on September 16, will be modified to help achieve the objectives described above. In particular, the interest rate on the facility will be reduced to three-month Libor plus 300 basis points from the current rate of three-month Libor plus 850 basis points, and the fee on undrawn funds will be reduced to 75 basis points from the current rate of 850 basis points. The length of the facility will be extended from two years to five years. The other material terms of the facility remain unchanged. The facility will continue to be secured by a lien on many of the assets of AIG and of its subsidiaries.
Sources:
Federal Reserve Board and Treasury Department announce restructuring of financial support to AIG
Federal Reserve, November 10, 2008
http://www.federalreserve.gov/newsevents/press/other/20081110a.htm
AIG, U.S. May Expand Bailout to $150 Billion, Cut Interest Rate
Hugh Son
Bloomberg, November 10, 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAlWe7pNn734
U.S. Throws New Lifeline to AIG, Scrapping Original Rescue Deal
MATTHEW KARNITSCHNIG, LIAM PLEVEN and SERENA NG
WSJ, November 10, 2008
http://online.wsj.com/article/SB122627437470412029.html
A.I.G. May Get More in Bailout
ANDREW ROSS SORKIN and MARY WILLIAMS WALSH
NYT, November 9, 2008
http://www.nytimes.com/2008/11/10/business/economy/10aig.html
November 10th, 2008 at 6:58 am
time to take the torch and start burning these black holes to the ground
November 10th, 2008 at 7:44 am
But at least AIG has a product that is competitive (insurance)..when we give the money to the big 3, people will still prefer foreign cars, or even worse, foreign designed cars built better in the USA than Detroit can do.
If you saw Wilbur Ross Friday, he makes the point that if auto worker wages are 35/hour in Detroit, foreign cars are being built in the South at 17/hour. Well, hell, to Mr. Ross, this lack of competitive labor costs in the Detroit area was reason to bail out these dinosaurs. I would say, if we do, money down a rat hole. They are being beaten by transplanted factories within the borders of the US…..What will change if we give them 50 billion? NOT A THING….
November 10th, 2008 at 10:49 am
BR, small math error: 150-85=65, then 65/85=76.5%, not 70%
re: Bruce comment – it isn’t the making of cars, it’s the rage of the retired autoworkers – currently the big 3 (maybe medium 3 is better) employ around 200K – but there are far more retired/bought-out folk out there, and letting the dinosaurs go under is toxic to them, and they are legion
not to forget that many big 3 dealers are long-time political funders in their local markets, and that they have legions of workers too – yeah I know they may not all lose their jobs, but try and tell them that in the current conditions….
November 10th, 2008 at 12:01 pm
A cautionary tale about placating restive constituents through unsustainable disbursements from the Treasury:
“Professor Steve Hanke, a senior fellow at the Cato Institute in the United States, said Zimbabwe’s annual inflation had soared to 2.79 quintillion percent, a world record in many respects. A quintillion is a figure with 18 zeroes and is a rung above a quadrillion.”
http://www.thezimbabwestandard.com/business/19196-zimbabwe-inflation-at-shocking-levels.html
November 10th, 2008 at 12:26 pm
In for a penny, in for a pound. Unfortunately, this is where our government has put our money and there is no going back.
November 10th, 2008 at 4:59 pm
So AIG gets a loan modification. The failure rate on modified consumer mortgage loans is around 40% or higher. What does everyone think AIG’s chances are then…?
As an American, I now am a partial owner of several banks, a large insurance company, and will soon own a car manufacturer. The madness of trying to socialize the impact, yet inevitability, of failure must be realized by the citizenry soon before it’s too late.
My .02 SGIP
November 10th, 2008 at 8:23 pm
Can’t we just make Warren Buffet buy more warrants here? This time in AIG? I mean, isn’t he going to leave everything to charity anyway?
Perhaps if we send him a chain letter….?