The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.
The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
(YWN Desk – NYC)
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6 Responses
This stuff’s wild!
Wow. The gov. is panicking and in a matter of 48 hours secured 150 in loans to companys with dozens of attorneys and cpa’s that were mismanaged and overextended.
Where is the federal gov. getting all this money?
Is there enough in the FDIC to insure the local yukel like me?
Now I understand what we say in davening, mashpil gayim adei aretz. This is it.
They also now own 80% of the company – so im sure over 10 years they will make alot of money – dont worry so much – they have enough to cover a Yukel like you
its my undersranding that the wealth of the federal gov. is military oriented, but its got to have a limit at some point.
to #1 “Where is the federal gov. getting all this money?”
Back in the old days (think of Weimar Republic, Berlin, 1923), if a government wanted lots of money and didn’t have the tax base it would like, they would buy some newspaper presses and start printing.
But this is the 21st century. All the government has to do is tap a few keys, and all the billions you want suddenly materialize in the government’s account. It’s sort of like a “cheat” key in a computer game.
If you tried this, it would be a felony. Unlike the government, when you write a check that isn’t covered, someone will eventually get mad at you.
The problems facing AIG impact the parent corporation, at least in the immediacy, and not the the day-to-day insurance part of the business. Second, the gov’t is providing a bridge loand for two years, totalling $80 billion backed by AIG’s assets. In short, AIG will probably end up being broken apart and sold but, this way, it won’t be sudden.
Meforshim say that before Moshiach arrives, the finances of the world be thrown into disarray. The events of the past few days certainly would seem to qualify as “disarray.”
#5, Lawman. Interesting insight.