This is just too much, AIG bailed out
AIG, beaten on its insurance and credit portfolio will now be bailed out to the turn of $85 Billion of government money. This comes after Merrill Lynch is sold and Lehman Brothers starts brokering its assets for liquidation. The government has provided billions of liquidity through Fed rate cuts, bailouts and even an economic stimulus yet the outlook remains bleak. This is now the second time in one week that federal money was used in a bailout.
Bear Stearns was supposed to be the first and only bailout with $30 Billion given to JP Morgan to essentially protect the bank from loss. This time, the Federal government is giving a $85 Billion loan for a swap of 79.9% stake of ownership and the right to throw out management. Toss on the $70 Billion that was made practically under the table as the three biggest banks garnered the headlines and the feds $70 Billion infusion went unnoticed.
There is something fishy with the level of government intervention we have seen just over the past few weeks. The fed is taking a very active role in negotiating each sale and orchestrating a solution that works out for all parties save the taxpayer. Of all the companies worth bailout out, AIG makes the most sense. Its insurance business that deals with risky debt is likely to fail without an infusion. AIG is the facet through which insurance money trickles down to the individual investors who are insured by AIG. If the company were to go bankrupt, chances are that many clients would take losses on debt that is insured but won’t get compensation. There simply wouldn’t be enough money to go around.
If this play were to fit any description, it’d be that of market manipulation. That $85 Billion will be back in the hands of investors and banks for their losses which adds liquidity, props up a firm, and maybe adds less employees on the unemployed list. Backing up AIG is pivotal for the markets which sent its stock into freefall.
