Communism bailing out Capitalism
Jammin909
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Fed Readies A.I.G. Loan of $85 Billion for an 80% Stake
http://www.nytimes.com/2008/09/17/business/17insure.html?_r=1&hp&oref=slogin
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 could be exchanged for an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.
A person briefed on the matter said the agreement does not require shareholder approval.
A.I.G.’s board approved the proposal at a meeting Tuesday night, the same individual said.
If the Fed takes a controlling stake, it is likely that it would want to replace A.I.G.’s board as well as its chief executive and chairman, Robert B. Willumstad.
The Fed’s action came after Treasury Secretary Henry M. Paulson and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday night to meet with House and Senate leaders. Mr. Paulson called the Senate majority leader, Harry Reid, Democrat of Nevada, about 5 p.m. and asked for a meeting in the Senate leader’s office, which began about 6:30 p.m.
The Federal Reserve had asked the investment banks Goldman Sachs and JPMorgan Chase to evaluate whether a banking consortium could be assembled to arrange a $75 billion loan for A.I.G. But the Federal Reserve and the two banks agreed late Tuesday that the plan could not be completed in time to rescue the insurance company.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.
Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.
But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.
Attending the meeting on the Capitol Hill were Democratic Senate leaders that included Charles E. Schumer of New York, Richard Durbin of Illinois, Christopher J. Dodd of Connecticut and Kent Conrad of North Dakota A contingent of Republicans was led by Mitch McConnell of Kentucky, the minority leader, and included Richard Shelby of Alabama, John Kyl of Arizona and Judd Gregg of New Hampshire. House leaders included John Boehner of Ohio, the Republican leader; Spencer Bachus, Republican of Alabama; and Barney Frank, Democrat of Massachusetts. Members of the leaders’ staffs were asked to leave the meeting shortly after it began.
http://www.nytimes.com/2008/09/17/business/17insure.html?_r=1&hp&oref=slogin
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 could be exchanged for an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.
A person briefed on the matter said the agreement does not require shareholder approval.
A.I.G.’s board approved the proposal at a meeting Tuesday night, the same individual said.
If the Fed takes a controlling stake, it is likely that it would want to replace A.I.G.’s board as well as its chief executive and chairman, Robert B. Willumstad.
The Fed’s action came after Treasury Secretary Henry M. Paulson and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday night to meet with House and Senate leaders. Mr. Paulson called the Senate majority leader, Harry Reid, Democrat of Nevada, about 5 p.m. and asked for a meeting in the Senate leader’s office, which began about 6:30 p.m.
The Federal Reserve had asked the investment banks Goldman Sachs and JPMorgan Chase to evaluate whether a banking consortium could be assembled to arrange a $75 billion loan for A.I.G. But the Federal Reserve and the two banks agreed late Tuesday that the plan could not be completed in time to rescue the insurance company.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.
Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.
But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.
Attending the meeting on the Capitol Hill were Democratic Senate leaders that included Charles E. Schumer of New York, Richard Durbin of Illinois, Christopher J. Dodd of Connecticut and Kent Conrad of North Dakota A contingent of Republicans was led by Mitch McConnell of Kentucky, the minority leader, and included Richard Shelby of Alabama, John Kyl of Arizona and Judd Gregg of New Hampshire. House leaders included John Boehner of Ohio, the Republican leader; Spencer Bachus, Republican of Alabama; and Barney Frank, Democrat of Massachusetts. Members of the leaders’ staffs were asked to leave the meeting shortly after it began.
The less you know, the more you believe.
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Capitalism at its finest.
Democrat or Republican...this should spark outrage.
why should it? the dems are for careful regulation of the economy and the republicans say they're not but they don't want to lose their money so...
Social programs that would benefit the masses are shunned while handouts for the rich are given out like candy. AIG, Bear Stearns, and IndyMac are all bigger drags on the economy than the crazy crack head receiving welfare.
no kidding. this is a mess of their making.
That is my understanding as well. The Feds seem to let the 'market work' when everything is going well, then step in when companies are failing. I keep hearing from the 'free market' proponents that the gov't needs to get out of the way. If that is the case, then shouldn't we just let businesses with bad investments fail? It's a big market, and someone will step in to pick up the business.
Also, thanks to John McCain, his buddy Phil Graham and other de-regulators, the banks run amok then scream for help when they get over-extended. It is interesting to me that these folks hate socialism when it comes to the common man, but they worship corporate socialism.
I have also heard the Feds make an argument that some companies are too big to fail, too vital to the economy and if AIG fails then it could create a domino effect. I'm certainly not smart enough in economics to know what is best or likely.
but the illusion of knowledge.
~Daniel Boorstin
Only a life lived for others is worth living.
~Albert Einstein
MARCH 17, 2005
By Diane Brady
AIG Needs New Policies
Martin Sullivan, Hank Greenberg's successor as CEO, needs to move fast and furious to clean up the insurance giant's messes
As Wall Street welcomes Martin J. Sullivan, the third-ever CEO of American International Group (AIG ), one thing looks clear: The company he inherits has to change. The problem isn't with the core business. Even amid the storms of scandal and Mother Nature last year, the insurance and financial services giant managed to surpass expectations by reporting record profits of $11.05 billion on sales of $98.6 billion.
Instead, the problem lies with the archaic management style and opaque business practices of Sullivan's former boss, the legendary Maurice R. "Hank" Greenberg, who resigned under pressure on Mar. 14. For almost 40 years, no one challenged Greenberg's iron rule. While the 79-year-old chairman, president, and CEO delivered great results, he was frequently bellicose, known to yell at staffers with such intensity that at least one insider jokingly compared his tenure to a reign of terror.
More significant, he was slow to embrace efforts to improve corporate governance, even characterizing the expenses of the Sarbanes-Oxley law as "an enormous burden" last year.
ARTIFICIAL BOOST? Now investors have reason to question if AIG's financial results were really as strong and steady as they seemed. Investigations launched by the Securities & Exchange Commission, New York State Attorney General Eliot Spitzer, and other regulators give them reason for pause (see BW Online, 3/16/05, "An SOS from AIG?").
The most recent allegations say in 2000, Greenberg himself authorized a deal in which AIG designed what regulators charge constituted an essentially fake reinsurance policy for General Re Corp. that artificially boosted AIG's reserves by $500 million. That move helped appease investors who considered AIG's reserves too low. "He personally asked for this," says a source close to the investigation. "He was doing something to defraud investors by cooking the books and changing the outcome."
Sullivan, 50, a witty charmer who eschews his predecessor's confrontational style, has promised to cooperate fully with regulators. He says he won't "ignore the issues that we have." Good thing. His "to do" list is already quite full.
ESOTERIC PRODUCTS. For starters, Sullivan has to take a hard look at insurance industry practices and products -- like one known as "finite risk reinsurance" that has regulators circling yet again, mere months after AIG paid $126 million to settle other investigations.
While the findings of the latest investigation remain to be determined, they do raise concerns about whether AIG may have used other techniques to elevate results in the past, especially given its record of consistently outperforming industry peers. Sullivan should lead the industry in scrapping esoteric financial products that can confuse investors about a company's true financial health.
A far harder job for Sullivan: yanking this mystery-shrouded organization into the 21st century by pushing for greater transparency and a stronger board. About half of the AIG board is independent, and the company did strengthen that contingent with the addition of former Merrill Lynch (MER ) executive Stephen L. Hammerman earlier this month. But investors like the AFL-CIO would prefer to see a two-thirds majority of truly independent directors.
""DEFIES COMMON SENSE." "One item that Sullivan should place high on his agenda: breaking down two little-known Byzantine private entities, Starr International and C.V. Starr & Co. These companies, which hold shares in AIG, seem to do little more than grossly enrich senior executives while making it tougher to figure out the firm's true cash flows.
Starr International, in which Greenberg still holds a directorship, is much like a private partnership used to compensate senior managers. Getting a stake equates with winning entrance to an elite club. C.V. Starr & Co. is essentially a broker that does business with AIG. Several of its board members are also senior AIG executives, including Greenberg and Sullivan. Both entities stay largely immune from public scrutiny but have drawn the ire of shareholders and regulators alike.
"This just defies common sense," says North Carolina State Treasurer Richard H. Moore, who recently urged the SEC to investigate AIG's relationship with C.V. Starr. The arrangement encourages self-dealing, according to investors who are currently suing AIG. Other critics argue that the opaque nature of its transactions with AIG could help the public company smooth out earnings. In any case, notes Moore, such entities "destroy, or taint, [AIG's] reputation, whether it's deserved or not."
PLUMMETING STATS. Last but not least: Sullivan should speed up the exit of Greenberg, who currently plans to stay on as nonexecutive chairman and, within the private entities, can still exert enormous control. AIG has benefited from Greenberg's strategic smarts and relationships, but it doesn't need them any longer. Having him hang around could make it tougher to speed through reform and restore the confidence of investors.
AIG's stock has already fallen to 20% off its high last year. Credit agencies like Standard & Poor's have put AIG on negative watch, while Fitch Ratings downgraded it from the much-vaunted AAA to AA+. "Are all these events and issues consistent with a AAA-rated company? Our conclusion was no," says Julie Burke, a Fitch managing director. "Things that were acceptable a few years ago are not acceptable now."
Sullivan has inherited a strong global franchise, but he also heads a company that bears the stamp of Greenberg, a brilliant but tone-deaf autocrat who continued to complain about increased regulation even as AIG was immersed in scandal. Says Patrick McGurn, of Institutional Shareholder Services: "Was there a reform he ever put in place that he liked?"
Investors can only hope that Greenberg's successor will embrace the reforms needed to bring AIG into the 21st century.
Exactly- another leaner and smarter company will pick up the mess and grow into the GIANT of the future. This is America.
Enough bandaids, if we were really concerned about the longterm sustainability and health of the economy, we would let these dishonorable institutions fail.
What are you talking about? Corporations ARE the market. That's what the system is. The market is a collection of shares of Corporations, and some other stuff. And of course, when one part of the market takes a dive, other parts get affected. That's the way it WORKS. There's nothing wrong with it. We have to weather the storm. Without the bad, we wouldn't have the good.
-Reagan
what's your point? should aig be bailed out or not? because it seems to me the poster you quoted is saying exactly what you just typed... that it doesn't matter if aig goes under. there will be rippled and so what? we'll weather the storm and move on. why are we bailing these companies out?
The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy.
The Creature From Jekyll Island.
READ IT.
the 45 minute lecture version ... its got nothing on the 500+ page book, but its a start.
THE MONEY MASTERS -- probably THE best, most informative, and most complete look at the federal reserve, and the phony baloney US banking system that has EVER been made, and it was produced almost FIFTEEN years ago. This is of monumental importance.
If you don't understand WHY the system was structured the way it was, AND BY WHOM, you will NEVER understand why shit keeps happening the way it does, and why the "public" system KEEPS BAILING OUT "private" banks.
THEY ARE ONE AND THE SAME. OWNED BY THE SAME INTERESTS. DIFFERENT ARMS OF THE SAME CREATURE.
PEOPLE YOU MUST LEARN AND UNDERSTAND THIS STUFF.
If I opened it now would you not understand?
naděje umírá poslední
There has been a calculated redistribution (or reverse redistribution of wealth) of power and wealth going on over the past 10-15 years. What little power and money(tax dollars) the avg Joe had have been taken away.
If the government buys out a company, why can't it stay public after the storm has gone? If anyone has the answer to that, I'd like to hear it.
There are a lot of regular people who invested thier time effort hard work and money into these companies for thier futures that are screwed, for a few assholes to get golden parachutes out of this is a freaking utter travesty. People should go to jail over this kind of mismanagement.
The bills are coming due now and now they are simply passing the buck on once again. The pride and arrogance of these people that have basically traded "risk" for years is staggering.
Heck - if my company is on the verge of failure, I know that the government isn't going to help us out.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
Because the Republicans will sell them off again to their friends in the name of SMALL GOVERNMENT.
Just like the airlines...privatize them...they cant run a business...bail them out with our tax dollars.
A market economy is only strictly adhered to when the wealthy class are reaping record profits, as AIG did just 2.5 years ago.
Amen.
...this board is largely socialist. You're points are 100% valid. Those who are socialists aren't applauding this move. Why? Most likely, because they want Republicans to look like they are responsible and at fault ect. In other words they care more about winning an election than actual policies. I think that's ironic. People lose sight of their beliefs, if parties cross lines.
The bottom-line question (to any socialist on here) is.... if it was the Republican party that moved us further towards socialism (in other words closer to a European-style economy), would you agree with that aspect of the Republican party?
In other news, oil may fall below $90 today. No media coverage on that one. lol
Good points.
With regard to the other news - gas rose 15% here late last week supposedly due to Ike and remains at that level even though the price of oil is dropping rapidly.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
Prices haven't budged here either, even though oil has fallen way of it's peak.
The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy.
The oil still has to be refined into all the special city blends of gasoline and shipped. It would be much cheaper now if the storm had not occured and effected an extremely important area in the energy infrastructure. Shutting down operations requires restarting things, doing it safely... takes a little time.
Yeah Lehman brothers. Government started playing hardball with LEH and then completely reversed course in the matter of days to save AIG.
I'd think part of it would come from taking control over the company and selling off the assets?
You and me. Bail em out again
But not of their solving, apparently :rolleyes: