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Bailout Central: AIG Comes Back for More, Big Three on Deck

Posted Nov 10, 2008 11:49am EST by Aaron Task in Investing, Recession, Autos

Bailout central. Bailout nation. The United States of Bailout.

Take your pick of the above to describe the state of affairs in America, after the government's latest move to keep AIG from going under and widespread expectations of similar treatment ahead for the "big three" automakers.

While the fate of GM, Ford and Chrysler remain (officially) undecided at this juncture, the government today reiterated its stance that AIG is "too big to fail."

What started as an $85 billion loan in mid-September is now a $150 billion package of support for the ailing insurer, which reported a whopping third-quarter loss of $3.42 per share Monday morning.

The latest government package features:

  • The government purchasing $40 billion in preferred stock (the first TARP money used for a non-bank entity).
  • A $60 billion loan to replace the original $85 billion loan (and at a lower interest rate, to boot).
  • A $22.5 billion purchase of residential mortgage-backed securities from AIG and a separate $30 billion purchase of its CDOs.

As Henry and I discuss in the accompanying video, the concern is that this latest bailout won't be the last for AIG, and why are AIG shareholders still benefiting from taxpayer funds? Also, if there's seemingly endless money for financial sector bailouts, why shouldn't automakers (or anybody else) expect the same kid-glove treatment?

126 Comments

JOHN
JOHN - Monday November 10, 2008 12:30PM EST

I agree, LET AIG FAIL!! That is what capitalism is all about. If your business fails, it tells other people "don't do what tey did". In other words failure is just as big a part of capitalism as success. We cannot have balance in our economy untill we stop socailizing loss while we privitize gains.

Patrick Henry
Patrick Henry - Monday November 10, 2008 12:34PM EST

Will we, the american people, ever finally rise up against these government scum and say enough is enough? Or will it take a complete collapse of our currency and an inflationary depression? Or if and when whe do have a collapse, will we simply sit back and let the very system that caused it (the federal reserve and our funny money system) take over and try to portray themselves as saviours? This is insane. The Fed won't even let Bloomberg check the books.

Elise
Elise - Monday November 10, 2008 12:35PM EST

Why government has to do so much to AIG? Why just do a tax cut to boost the enconomy? All these bailout will lead to corruption when we had a centralized government trying to reallocate wealth. Did the history show us this already?

R
R - Monday November 10, 2008 12:35PM EST

Beware, the AIG bailout is not really an IAG bailout, IT IS A BAILOUT FOR CREDIT SWAP DERIVATIVES, that were negotiated OTC without government supervision as a big credit risk. Institutions or persons that bought the speculative CSD should suffer the losses and not the tax payer !!!!! Why should the Treasury be giving money to AIG to indirectly cover the losses of the holders of Credit Swap Derivatives ???? THE TREASURY IS PROTECTING AND COVERING THE GREED AND ABUSE OF A FEW WHO DECIDED TO TAKE A HIGH RISK... Stop this abuse, stop giving our money away to cover the speculators.

Go
Go - Monday November 10, 2008 12:35PM EST

We are bailing out Wall Street because the financial sector now constitutes more than 20% of American GDP and manufacturing only represents about 12%. America is addicted to the debt and asset shuffling of Wall Street and has largely lost its ability to manufacture products that our trading partners want.

peter
peter - Monday November 10, 2008 12:38PM EST

This Tech Ticker is the best part of Yahoo Finance. I really love it. These guys are obviously very progressive (re: libertarian) in their thinking which is refreshing. Thank you Yahoo!

jerry e
jerry e - Monday November 10, 2008 12:41PM EST

Good ol' Hank, he takes care of his "buddies" at the expense of the American people and lets the Auto Industry fend for it's self! What would happen if the Auto Industry "dried up" how many people would that effect and what would this do to our economy and for the world economy? Thank God Hank Paulson is on the out we couldn't stand any more of his financial irresponsibilities.

charles.torre
charles.torre - Monday November 10, 2008 12:43PM EST

A bad "investment" is a bad "investment". It's time to cut your loses. When all this bailout talk stated, I said vote it down and hunt them down. I still think that's the way to go.

Yahoo! Finance User
Yahoo! Finance User - Monday November 10, 2008 12:43PM EST

It will get worse, before it gets better as with most problems in life. There has to be a solution that will work, even if it takes time. We need someone who will find and enforce a solution that will be good for the people as a whole, not just those who stand to make, or lose, a substantial amount of money. The actions of the past are just that, in the past. Lets move forward. We need a hero...

michael
michael - Monday November 10, 2008 12:45PM EST

AL CAPONE WAS A HERO IN HIS TIME ROB FROM RICH AN GAVE IT TO THE POOR HE WAS A GOOD GUY COMPARE TO THOSE CEO OF TODAY......

chips
chips - Monday November 10, 2008 12:48PM EST

Ho 4:6 ¶ My people are destroyed for lack of knowledge: because thou hast rejected knowledge, I will also reject thee.

Ted
Ted - Monday November 10, 2008 12:50PM EST

Will some constitutional scholar please state if government investment in private industry, with tax payer dollars, is constitutional. I don't believe it is. We are witnessing a venture down an extremely dangerous path. What else will the government take over without constitutional authority. Sure, they claim it is an investment that will give a return to the taxpayers. The problem is that the return will never reach my pocket. Meanwhile, CEOs will continue to have lavish parties, under the guise of 'necessary' business meetings, using our money. Where is the outrage? What can we do? We are more than likely in the throw of death for our democracy. Aperfect example of "Absolute power corrupting absolutely." And now, we have an inexperienced blowhard for a president who will most likely exacerbate the problems we have with judgements guided by people leaning so far left that they nearly fall to the ground.

Yahoo! Finance User
Yahoo! Finance User - Monday November 10, 2008 12:51PM EST

now I am paying twice . Once as a taxpayer now as a customer. They just raised my car insurance almost 50% what nerve . Take it from their stockholders or from the crooks they had running their company. Not me .I am looking for another car ins company as fast as I can and I hope everyone else does also.!!!!!!!!!!!!!! I DO NOT WANT TO BAIL OUT THIS COMPANY GIVE ME A SHARE OF THE BAIL OUT MONEY AND LET ME USE IT TO LIVE ON NOT THEM.

"Jackson Cash"
"Jackson Cash" - Monday November 10, 2008 12:51PM EST

Bailout after bailout after bailout after bailout -- but yet the electorate sent the same f-ing bums back to Washington. We're here to rot folks -- to the benefit of the rich. Welcome to the Socialist Corporate States of the Formerly United.

tanc
tanc - Monday November 10, 2008 12:53PM EST

I would like to know who is going to bail out the bail outers? All this cash needs to come from somewhere.If I write bad checks I go to jail. If I don't pay my bills I loose my house and car. What makes these greedy fools any better than I?

Yahoo! Finance User
Yahoo! Finance User - Monday November 10, 2008 12:53PM EST

Let the big 3 fail. There is a reason a haven't bought a US vehicle in 30 years. The price has never been the problem, it the lack of a good product. If there was no value to me buying one why is there some value in bailing out these poorly run companies. Let the Union buy them.

Yahoo! Finance User
Yahoo! Finance User - Monday November 10, 2008 12:55PM EST

Does our government really believe that pain should be avoided? If you put your hand into a fire, you get burned. The pain reminds you. I am sick of our goverment (Dems and Reps) running to Corporate America like Mother trying to "kiss it and make it better". GM is on the brink because they make products that nobody wants to buy. The financial firms that are in trouble are there because they made bad loans or bought mortgage backed securities based on those bad loans. Our economy is cyclical. Let the cycle run it's course. This is capitalism's way of pruning the heard. Does it hurt? Yes! Will it get better? Yes! Obama can't fix it and neither can Congress. They have no discipline when it comes to spending. If I want to be a Socialist then I'll move to Denmark or Holland!

jeffrey
jeffrey - Monday November 10, 2008 01:07PM EST

The American people are to blame for GM/Auto industry decline- they are mesmerized by the illusion that foreign cars are somehow better and dont give US cars a chance.. After 50 years in America, the Asian cars still look like bugs, beetles and turtles and are deathtraps in an accident. Blame Carter & Clinton for letting the Asian auto companies into the US, they should have been banned. I still own six GM cars and proud of it, I have a 1955 GMC truck, 1983 Olds, 1998 Pontiac, and newer ones, all running and looking great and SAFE !!!

Yahoo! Finance User
Yahoo! Finance User - Monday November 10, 2008 01:16PM EST

We should just give them the $700B an call t a day. it will come to that. Bail-out, Bailout... what does the government tell the unemployed? you're worstless that what they say to us.. when companies get funds that help them sta afloat and add more green to there pockets.

Yahoo! Finance User
Yahoo! Finance User - Monday November 10, 2008 01:22PM EST

GREED IS GOOD... ESPECIALLY WHEN THE GOVERNMENT WON'T ALLOW YOU TO FAIL !!!! .... GORDON GEKKO. "ITS THE END OF THE WORLD AS WE KNOW IT"...ITS THE END OF THE DOLLAR AS WE KNOW IT".... "I FEEL FINE!"

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