Tag Archives: AIG

Congressman Ron Klein Statement on AIG

Posted on by


[Skip to the end]

Hi Ron,

Add this?

But let me add that it’s our fault. We make the laws and the regulations. If anyone violates the laws there are prisons waiting for them.

If they acted within our laws, however flawed, it’s our responsibility to alter those laws to serve public purpose as we can best determine.

Therefore, while addressing the current injustices will be pursued with the full force of the law, I will be moving just as forcefully to alter existing law to remove the incentives that encouraged this outrageous behavior, and put in additional safe guards, along with appropriate supervision, to ensure public purpose is served by our corporate structures.

All the best!

Warren

Statement of Congressman Ron Klein, as prepared for delivery

Hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises

“American International Group’s Impact on the Global Economy: Before, During, and After Federal Intervention”

Wednesday, March 18, 2009

Thank you, Chairman Kanjorski, for holding this important hearing.

I am disgusted by the deplorable saga of AIG, and I join my constituents in their unfettered outrage about the millions of dollars in bonuses that are being awarded to AIG employees.

The American people understand that we are going through a difficult time, and are prepared to sacrifice and work together to get our country back on track. But they will not stand for taxpayer dollars being lavished on bonuses for people who bear responsibility for this crisis, and neither will I.

When I am back in my district in South Florida, I talk to people who have lost their jobs. Who have closed the doors to their small business because they can’t get a loan on reasonable terms. Who have lost their health care, or their home, or their pension and retirement savings.

Yet here I am sitting across from the AIG Chairman and CEO who is distributing million dollar bonuses to those who drove company in the ground. There is a tremendous disconnect between South Florida and the executive offices of AIG.

I just want to know one thing. What were you thinking?

I look forward to the testimony, and a frank discussion today.


[top]

Share

Bloomberg: Thoughts on Treasury plan

Posted on by


[Skip to the end]

My take is an RTC type solution only works when the government owns the institutions, so this will probably be different.

I suspect it will be more like Japan, where the government bought a new class of preferred stock in the banks to add capital.

Whatever they will do will cause credit spreads to come in, which will make the assets of AIG far more valuable and probably result in a ‘profit’ for the government.

Unsold Lehman assets will also appreciate.

More comments below:

Paulson, Bernanke Push New Plan to Cleanse Books

by Alison Vekshin and Dawn Kopecki

Government Options
Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets

I see this as problematic as above and as below.

and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff. They spoke on condition of anonymity because the plans may change.

This puts money funds on par with insured bank deposits. Seems no need for both.

Instead, better to remove the $100,000 cap on bank deposit insurance to allow large investors use bank deposits safely. There is no economic reason for the low cap in any case.

Another possibility is using Fannie and Freddie, the federally chartered mortgage-finance companies seized by the government last week, to buy assets, one of the people said.

That’s already in place. They already have treasury funding to buy mortgages.

“We will try to put a bill together and do it fairly quickly,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said after the meeting. “We are not in a position to give you any specifics right now” on the proposals, he said when asked about the potential cost.

The likelihood of the government taking on yet more devalued assets, after the seizures of Fannie, Freddie and AIG and the earlier assumption by the Fed of $29 billion of Bear Stearns Cos. investments, may spur concern about its own balance sheet.

We need to get past this concern about government solvency. It’s simply not an operational issue.

Debt Concern
The Treasury has pledged to buy up to $200 billion of Fannie and Freddie stock to keep them solvent, while the Fed agreed Sept. 16 to an $85 billion bridge loan to AIG. The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program.

“It sounds like there’s going to be a giant dumpster for illiquid assets,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets. “It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative” to the size of the American economy, he said.

This is ridiculous and part of the problem that got us to this point.


[top]

Share

Fed loan to AIG

Posted on by


[Skip to the end]

My question remains: can they give the shareholders less than they would have gotten in a bankruptcy?

The burden of proof may be on the government to show that the shareholders are better off with the 20% of net worth they are giving them due to the value added of the loan facility, vs 100% of the net worth in a straight bankruptcy.

Press Release

Release Date: September 16, 2008

For release at 9:00 p.m. EDT

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.


[top]

Share

NYT: Fed to Give A.I.G. $85 bln Loan and Takeecon

Posted on by


[Skip to the end]

The Fed has a major strategic advantage over private sector buyers.

With the Fed making the loan, credit spreads in general should narrow.

This will add value to AIG’s short credit position which is where most of the mark to market losses are.

So the Fed’s actions to reduce systemic risk also increase the value of AIG once they take them over.

It’s good to be the Fed!

(not that it matters to the Fed itself financially one way or the other, but they probably don’t know that)

Fed Close to Deal to Give A.I.G. $85 Billion Loan


by Michael J. de la Merced and Eric Dash

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.

In return, the Fed will receive warrants, which give it an ownership stake. All of A.I.G.’s assets will be pledged to secure the loan, these people said.

The Fed’s action was disclosed after Treasury Secretary Henry M. Paulson and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday evening 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.


[top]

Share