Despite a $143 billion federal rescue effort, American International Group seems to be tottering towards collapse. The giant insurer is quickly running through Federal Reserve lending and key executives are jumping ship, leaving some experts to wonder if bankruptcy might have been a better alternative.
Claiming to be solvent in September, AIG has been spending nearly $123 billion of the emergency Federal Reserve lending made available in September and October to keep the firm from going under.
The money was part of a total of $143 billion in loan money given by the federal government to assuage fears that AIG was so large and intertwined with the financial community that its failure would have a disastrous domino effect.
The firm originally received $85 billion in bailout money in mid-September, but that sum has been increased by $38 billion more to give it credit in securities so it won’t spend the first $85 billion too fast. Last week, the Fed agreed to let AIG borrow $20 million more from a commercial paper bailout fund it had set up.
Burning so much money so fast has raised suspicions that AIG had already incurred billions of dollars in losses when the federal government extended it the $85 billion emergency line of credit. According to media accounts, AIG has not provided details of how it has spent the money. Complicating matters is that many of AIG.’s liabilities are in complicated and hard to value derivatives.
Adding to AIG’s woes is the brain drain as talented executives rush to the exits. Numerous senior underwriting executives have bolted in recent weeks although management claims the firm still has a deep pool of able workers.
The company’s predicament has led analysts to wonder if going bankrupt instead of receiving a bailout might have provided more structure and protected taxpayers better. There are suspicions that AIG’s bankruptcy might not have caused the massive aftershock that was predicted and used as an excuse for the bailout.
First, ask yourself why though...Fed loans AIG $100B+ and won't lend GM $10B. What does that tell you about each company's real asset base and pivotal role in the economy?
Buy AIG friend, it will make you lots of money at these prices and liley rather quickly.
i find these kind of postings puzzling. Everybody who is following AIG knows where the money went. It was posted as collateral for the swaps. There is no mystery. The only real question is whether AIG can sell enough of itself to cover the government advances and still have a decent company. We should start to get some answers when earnings are posted next week and the quiet period is over. Listen to the conference call next Monday.