Wednesday, Sep 17, 2008
Federal Reserve - not the Treasury - buys up AIG
Mish's: Nationalization of AIG: Treasury to get 80% stake in return for $85 billion
In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.
All of A.I.G.’s assets would be pledged to secure the loan, these people said, and in return, the Fed would receive warrants that would give it an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.
Posted by drewster @ 02:21 AM (773 views) Add Comment
12 Comments
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1. whiteknight said...
Oh. now this is a real f**k up. In an effort to persuade certain factions that Moral Hazard was at an end - we infact find it is nothing like
at an end. And worse they have thrown kerosene into the mix.
The Yard Arm stands ready.
2. Will said...
Shares being wiped out on these giants - but the companies survive. Why should anyone be a share holder anymore?
3. mountain goat said...
Well, as I discovered yesterday to my cost that AIG is not just a bankrupt insurer but also supplies the infrastructure to financial markets. Letting it go bankrupt would have led to disorder in the markets although in time the infrastructure part of the business would have been bought up when the company got broken up. But in the mean time there would have been meltdown. I think it is right for governing bodies to maintain infrastructure. Just like if rioting breaks out governing bodies need to restore order by force if neccessary for the greater good.
4. alan said...
OK, Chrysler is next in line.
5. fubar said...
Depends on who's doing the rioting and for why.
6. timmy t said...
"From each according to their ability, to each according to their needs"... Karl Marx... Where is America going?
7. mountain goat said...
@ fubar
I suppose what I was trying to say is that rioters might have a legitimate grievance but as rioters you can't negotiate with them. So you first stop the rioting then deal with the grievance. In this case having a financial infrastructure meltdown just makes matters worse. But there clearly is a problem with this company which in time needs to be sorted out.
8. beartil2010 said...
Mountain Goat - spent last night researching these instruments, and how AIG works with them. Now the government is coming in, this trading should be restored. If the credit rating is restored (now that the government is backing the company) then the instruments should also go back to their proper value.
From the etfs site:
AIG confirmed that last night there was an announcement by the Federal Reserve Board, that the Federal Reserve Bank of New York is providing a two-year, $85 billion secured revolving credit facility to AIG that will ensure the company can meet its liquidity needs.
AIG has continued to honour all of its obligations under our agreements with them, including processing all creations and redemptions in the usual manner and paying all redemptions due on time.
ETFS is in discussion with its market makers and the Exchanges (London Stock Exchange, Deutsche Borse, Borsa Italiana and Euronext) to ensure that trading can resume and/or continue in an orderly fashion as soon as possible. It is our understanding that the London Stock Exchange (“LSE”) has suspended electronic execution for Wednesday 17th September but off-book trading will continue. ETFS Commodity Securities will continue trading on all other Exchanges.
9. mountain goat said...
Thanks Bear. I found the ETFS site language almost impossible to work out. Lawyer speak. My ETFs still looking pretty shaky at the moment I guess it is this "off-book trading" for people who desperately want liquidity. Will probably take a few days to sort out but I am relieved my assets won't be wiped out.
10. fubar said...
Point taken mountain goat. I was trying for flip. On the other side the way it seems to me is that any sense of accountability in these financial institutions is gone. Sometimes the only way to make the powerful and rich listen is to go out on a street and make a nuisance of yourself. 2 million (give or take) people stood up and said "No" to Blair and he listened...err....
11. Guy said...
have a look at the latest MoneyWeek article. It goves some positive information about AIG commodity etf's
(I am also a large holder of these, after having my Life Equitable pension collapse, my endowment policies worthless, I decided to opt for something 'safe' - what a laugh!)
12. beartil2010 said...
Yes some money recovered from yesterday - if AIG had gone down that would have been a complete wipeout.
The next situation and decision is this:
If AIG's credit rating goes up, the ETCs will go back to their normal level.
If the credit rating stays static, then the ETCs may continue to trade at a discount despite liquidity (this is in the small print of the prospectus and is I believe to do with cost of carrying and insuring debt from a company with a loer credit rating).
Bankruptcy has been avoided - so total wipe out, at least for the foreseeable future.
So it can't get any worse than it is right now, and it might get better.
Personally I am not going to liquidate yet in the hope that they improve.