Quick Hits: AIG Spending Like There's No Tomorrow
Brief scrutiny of today's headlines.
American International Group (AIG) has spent about $90 billion of the federal government's $143 billion rescue package, leading some to say it's not enough.
Critics say shareholders and taxpayers would have been better served by a bankruptcy filing, but the point of the bailout was to save the US financial system from collapse - not just to rescue AIG.
The situation is further complicated by by the company's top executives, who have squandered taxpayer money on trips to resorts and England, suggesting the company could benefit from some adult supervision.
AIG's quickly spent about $90 billion, suggesting that it grossly undervalued its obligations to others.
The Fed has twice added to the original $85 billion bailout, already the largest government bailout of a private company in the nation's history. In October, Uncle Sam gave AIG $38 billion more in credit for securities lending in an effort to keep the company from drawing down its first loan too quickly. Last week, the FED agreed to let AIG borrow $20 billion from a larger commercial paper bailout fund it had set up for institutions that lend money to each other.
Earlier this year, investors began making private demands that AIG pay off its billion-dollar guarantees. In mid-September, AIG said it didn't have enough cash to cover its obligations and the company has used the federal bailout money to post collateral demanded by other firms, The Washington Post reports.
Critics say no one else benefits from using the money this way and taxpayers may suffer a significant financial loss. The company may be forced to borrow additional federal money to cover future payouts to others.
The value of the company's mortgage assets is probably declining and that means it must pay a higher price for its guarantees. AIG also may be forced to sell more assets at low prices to raise cash quickly.
Taxpayers now hold about 80% of the company.
The unknown, and perhaps unknowable, part of the calculation: who else goes under if AIG fails?
The purpose of the Fed's bailout is to avoid answering that question.
Is there another Lehman Brothers out there?
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