FED has taken over AIG - taxpayers get screwed yet again!

[MikeWB]

This is really bad folks. DEEP recession is now 100% certainty.... only question left is whether the depression is coming within a year or two or later.

Fed Readies A.I.G. Loan of $85 Billion for an 80% Stake

By MICHAEL J. de la MERCED and ERIC DASH
Published: September 16, 2008
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.

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Richard Perry/The New York Times
The scene Tuesday outside American International Group's building in Lower Manhattan.
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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.

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 and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for A.I.G. to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

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.

WSJ:

U.S. Plans Rescue of AIG to Halt Crisis;
Central Banks Inject Cash as Credit Dries Up
Emergency Loans for Giant Insurer Aimed at Averting Collapse;
Historic Move Comes Amid Worries About Money-Market Funds

By MATTHEW KARNITSCHNIG, DEBORAH SOLOMON and LIAM PLEVEN
Article
Slideshow
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The U.S. government was moving toward an emergency rescue of American International Group Inc. -- one of the world's biggest insurers -- signaling the intensity of its concerns about the danger a collapse could pose to the financial system.

It's a dramatic turnabout for the federal government, which has strongly resisted overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy. Just last weekend, the government effectively pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to fail instead of giving it financial support.


Associated Press
Businessmen leave an American International Group office building Tuesday in New York.
The final decision to provide a federal backstop for AIG came on Tuesday, as the federal government concluded it would be "catastrophic" to allow AIG to fail, according to a person familiar with the matter. Federal officials had tried to get the private sector to pony up some funds during its 3-day meeting in New York over the weekend. But those efforts failed and with no private sector support forthcoming, Fed Chairman Ben Bernanke, NY Fed President Timothy Geithner and Treasury Secretary Henry Paulson concluded that federal assistance would be necessary to avert an AIG bankruptcy, which they feared would have disastrous repercussions throughout the financial markets.

Staff from the Federal Reserve and Treasury worked on the plan through Monday night. President Bush was briefed on the rescue Tuesday afternoon during a meeting of the President's Working Groups on Financial Markets.

The precise details of the government's plans were still being formulated late Tuesday. The primary option being hammered out involved the Fed providing AIG with a short-term "bridge" loan of $85 billion, according to people familiar with the situation. In exchange, the government would receive warrants in AIG representing the right to buy its stock, under certain conditions. That could put the government in a position to potentially control a private insurer, a historic move, especially considering that AIG isn't directly regulated by the federal government.

The moves capped a day of high drama in Washington, which was peppered with canceled meetings and speeches from top officials. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke convened in the early evening an unexpected meeting of top Congressional leaders, including Sen. Harry Reid of Nevada, the majority leader, top members of the Senate banking committee and leaders, too, from the House.

Sen. Richard Shelby of Alabama said he didn't receive a "satisfactory" answer from Mr. Paulson in an early conversation about the ultimate scope of government intervention. "I laid out -- where do you stop? Where do you draw the line?"

The Federal Reserve appeared to be motivated in part by worries that Wall Street's financial crisis could begin to spill over into seemingly safe investments held by small investors, such as money-market funds that invest in AIG debt.

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Indeed, on Tuesday the $62 billion Reserve Primary Fund, a New York cash-management fund, said it "broke the buck" -- that is, its net asset value fell below $1-a-share level that funds like this must maintain. Breaking the buck is an extremely rare occurrence. The fund was pinched by investments in bonds issued by now collapsing Lehman Brothers.

Money-market funds are supposed to be among the safest investments available. No fund in the $3.5 trillion mutual-fund industry has lost money since 1994, when Orange County, Calif., went bankrupt. A number of money-market funds own securities issued by AIG.

AIG's financial crisis intensified Monday night when its credit rating was downgraded, forcing it to post $14.5 billion in collateral. The insurer has far more than that in assets that it could sell, but it could not get the cash quickly enough to satisfy the collateral demands. Thus the interest in obtaining a bridge loan to carry it through.

That the government would prop up AIG financially offers a stark indication of the breadth of the insurer's role in the global economy. If AIG were to have trouble meeting its obligations, the potential domino effect could reach around the world.

For one thing, banks and mutual funds are major holders off AIG's debt and could take a hit if the insurer were to default. In addition, AIG was a major seller of "credit-default swaps," essentially, insurance against default on assets tied to corporate debt and mortgage securities. Weakness at AIG could force financial institutions in the U.S., Europe and Asia that bought these swaps to take write-downs or losses.

AIG's millions of insurance policyholders appear to be considerably less at risk. That's because of how the company is structured and regulated. Its insurance policies are issued by separate subsidiaries of AIG, highly regulated units that have assets available to pay claims. In the U.S., those assets can't be shifted out of the subsidiaries without regulatory approval, and insurance is also regulated strictly abroad.

Tuesday afternoon, after the market closed, AIG put out a statement saying its basic insurance and retirement services businesses are "fully capable of meeting their obligations to policyholders." AIG said it was trying to "increase short-term liquidity in the parent company," but said that didn't "include any effort to reduce the capital of any of its subsidiaries or to tap into Asian operations for liquidity." Asia is one AIG's largest markets.

Where the company is feeling financial pain is at the corporate level, even while its insurance operations are healthy. If a bankruptcy filing did ensue, the insurance subsidiaries could continue to operate while in Chapter 11, or could also be sold.

Still, a collapse of the parent company would have huge ripple effects. The urgency of federal aid came into stark relief Tuesday as other options fell off the table and pressures continued to built. On Tuesday, AIG's attempt to raise as much as $75 billion from private-sector banks failed. The banks advising the firm concluded it would be all but impossible to organize a loan of that size, making the government AIG's chief hope.

As a result of the credit downgrades, AIG has to post $14.5 billion in collateral to bolster its credit rating. In the debt markets, AIG also has to post additional collateral to investment banks and others it trades with.

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Concerns about AIG's future are prompting some of its clients to close out their accounts, further exacerbating the situation, according to a person familiar with the matter.

Adding to AIG's woes, investors continued to pummel the company's stock on Tuesday, pushing the share price down another 21%, to $3.75. It was the third double-digit percentage decline in the last three trading days.

Federal officials worked throughout the day to help the company forestall a possible bankruptcy filing. Insurance regulators in New York, where AIG is based, are also working on a plan to let AIG move some assets into and out of its subsidiaries in order to be able to borrow up to $20 billion against some of them. But a spokesman says the department is confident it is protecting policyholders.

"Our deal is contingent on a broader solution to AIG's problems," says the department spokesman, David Neustadt.

AIG's cash squeeze is driven in large part by losses in a unit separate from its traditional insurance businesses. That financial-products unit, which has been a part of AIG for years, sold the credit-default swap contracts designed to protect investors against default in an array of assets, including subprime mortgages.

But as the housing market has crumbled, the value of those contracts has dropped sharply, driving $18 billion in losses over the past three quarters and forcing AIG to put up billions of dollars in collateral. AIG raised $20 billion earlier this year. But the ongoing demands are straining the holding company's resources. Further losses in the third quarter are increasing the tension.

That strain contributed to the ratings downgrades on Monday. Those downgrades, in turn, ratcheted up the pressure on the company to come up with more cash, quickly.

As confidence in the company's fate has plummeted, the amount it feels compelled to raise to calm its many constituents continues to rise. Though $40 billion was the figure over the weekend, it climbed to 75 billion on Monday and, according to a person close to the company, to $100 billion on Tuesday.

The rapid escalation in its potential needs has raised the spectre of bankruptcy. In preparation for a possible bankruptcy filing, AIG has hired New York law firm Weil Gotshal & Manges to advise it. Weil is also working for Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy protection earlier this week.

Experts say insurance bankruptcies are somewhat rare, partly because the insurance industry is largely governed by state law and therefore largely barred from using the federal-bankruptcy system.


The ratings downgrades also triggered a provision in some of AIG's large commercial insurance policies that allow holders to cancel the policies and recoup some of the premiums they paid, according to people familiar with the matter. It's not clear whether policyholders are exercising that right.

But insurance brokers are contending with worried clients who have policies issued by AIG. Daniel Glaser, the head of the brokerage unit at Marsh & McLennan Cos. (and a former AIG executive) posted a letter to customers on the company's Web site saying that AIG is "facing a liquidity crisis." Nonetheless, Mr. Glaser wrote that AIG meets the broker's "financial guidelines," despite recent rating downgrades. "Therefore, we have no restrictions on the use of AIG insurance company subsidiaries for client placements," Mr. Glaser wrote.

In Asia, where AIG operates a wide network of businesses, its affiliates sought to reassure clients that they had sufficient capital to meet all policy claims. Regulators in India, Hong Kong, Singapore and Thailand said local AIG units have enough capital to cover their obligations. Regulators in China said they were monitoring the situation.

Customers outside the U.S. accounted for 79% of AIG's insurance premiums last year, with Japan and Taiwan among its largest markets.

Despite reassurances from regulators that their policies were covered and warnings that cancellations could lead to losses, dozens of people lined up outside AIG-affiliated offices in Singapore. Some waited for three hours to be attended by staffers. Others said that they wanted to make sure that their policies are safe, while others said they would cancel their policies.

[mobes]

this should be no surprise. The derivative market would've blown up if these guys didn't take it over.

[Magnetar]

Hello folks - It looks to me the Federal Reserve Bankers will actually own 80 percent of AIG, they needed them to squeeze our balls a little harder

Check out this article written by Joan Veon September 15 -
http://www.newswithviews.com/Veon/joan156.htm

Here is the meat-

The situation we are confronted with did not happen in the last few years, but began in 1913 when a group of cunningly deceitful legislators passed the Federal Reserve Act on December 24 at 11:45 p.m., after those who were opposed went home for Christmas. The entire financial system of the U.S. was transferred from Congress to a private corporation that is NOT accountable to Congress. They create and destroy the business cycle by various means: raising and lowering interest rates. The government of the United States is in bondage to a group of individuals who own the Federal Reserve. The reason why the American people cannot forgive themselves the interest on our debt is because we do not owe it to ourselves we owe it to the Federal Reserve! Every single time since then that the Federal Reserve Act was amended, over 195 times, the Federal Reserve gathered more power over various aspects of our economy. However, they are in the final throes of stripping America of any remaining vestiges of sovereignty as has been laid out in the Treasury "Blueprint for a Modernized Financial Regulatory System."

The Blueprint was written under the watchful eye of one of America's most successful international bankers, former Goldman Sachs CEO Hank Paulson, who is now our illustrious Treasury Secretary. Is this not a case of the fox in the chicken coup? Long time investment sage Marty Whitman commented on his actions, "Paulson thinks he is in Russia and is not giving any value to stockholders. It is outrageous that the Treasury Secretary is not giving any consideration to the shareholders."

The Blueprint calls for key components of our financial system, not currently under Federal Reserve control, to be transferred to them. In order to do this, a number of changes will be necessary which Congress will have to approve. First, it recommends changing the banking charter to include all financial institutions, thus effectively transferring control over "national banks, federal savings associations, and federal [and state] credit union charters." For your information, Washington Mutual is a savings and loan while Lehman Brothers is and Bear Stearns was an international bank. The Fed is to be given authority over the U.S. Payment and Settlement System thereby controlling the settlement process for securities. It will be given the role of Market Stability Regulator and it will have total control over the market. The Blueprint provides for the entire mortgage system of the U.S. to be federalized and to be under the control of the Mortgage Origination Commission. The Federal Reserve will be part of the Commission. Additionally the Federal Reserve will be given a say in the insurance industry which will be federalized and a new Office of Insurance Oversight will oversee its activities. The Federal Reserve will have a place on the Insurance Oversight commission.

By the time Congress votes on the Blueprint, there will be so many reasons for them to transfer the last vestiges of our financial sovereignty to the Federal Reserve that they will not even have to read the prepared legislation. So far, we have the bailout of Freddie and Fannie by giving Treasury a blank check to act; the Federal Reserve worked all weekend to find a buyer to Lehman, another international bank, their next project might be to rescue Washington Mutual, a savings and loan, and the Fed has been given initial powers to act as the Market Stability Regulator. The only component that is missing is the demise of an insurance company, AIG anyone?

For the record, at the heart of the Blueprint is changing our financial/banking and securities regulatory system from a national system to an international system to bring America into the world governmental system that functions above the nation-states. I have maintained that in order to get Congress to go along, we would have to have a huge problem which would allow Congress to be convinced that they need to act, however, the truth of the matter is they no longer have the power they once had because the majority has been transferred to the Federal Reserve.

History will determine how the final stage was set but I believe it started in 2000 with the Crash of the Nasdaq. Who would have ever thought that a stock would drop 90% in value? About $7T vanished from the balance sheets of investors. But we did not have to worry, as a result of 9/11, the Federal Reserve started to reduce interest rates to 45 year lows to get Americans to support the economy by buying the dream home. We bit the bait. It was the Roaring 20s all over again. At one point in the housing boom, one out of four jobs was created by the housing industry. No one asked if they could afford the debt, they only asked if they could afford the payment: a big difference. They did not ask the right questions about their mortgage because the mortgage industry was not required to disclose to them, when it should have. At one time the mortgage industry was run on honesty and integrity, but that changed too and people have been caught in a terrible snare.

The Bailout of Freddie and Fannie provide us with the latest excitement in the diabolical saga of the raping, robbing, and pillaging of America. Interestingly enough it took place 13 months after the beginning of the credit crunch. Lastly, I have maintained since the beginning of the credit crunch last August that it was planned and managed destruction in order to accomplish the final transfer of America's financial sovereignty. All of the above only confirms my original suspicion. Sadly, only the strong will survive, only those who did not use their house as a checking account will survive, only those who turn to the Creator of the Universe, the Lord God who created heaven and earth, and His Son, Jesus, will survive in the midst of the Great 2008 Transfer of Wealth.

[Ognir]

HAHA finally someone mentions the root of the problem

1913 and the sell out of America to the Jewish bankers

[sullivan]

This is really bad folks. DEEP recession is now 100% certainty.... only question left is whether the depression is coming within a year or two or later.

It certainly looks bad. It leaves me wondering how long it will be before there is another taxpayer-funded rescue of an Irish bank, like the disgraceful rescue of Allied Irish Bandits back in the 80's. I know such thinking is very parochial of me, but thems the breaks...

[mobes]

OK seriously. WTF is it going to take for the American public to realize they are getting screwed?

Probably when they have no food, water, shelter, fuel or entertainment......lets see how the public will react when they have all of these things taken away from them!!!!

[Anonymous]

OK seriously. WTF is it going to take for the American public to realize they are getting screwed?

Probably when they have no food, water, shelter, fuel or entertainment......lets see how the public will react when they have all of these things taken away from them!!!!

most likely it will be like Serenity or Firefly if you like.

The system of control of the Alliance caused most people to lay down and die from Apathy and a small % became human flesh eating Reavers. you can read into this what you would like.