Attention Taxpayers: I Need A Bailout-AIG Style!

UPDATE: Sarah Palin Interview on Economy, Energy, Economic and National Security. Please watch the three videos that will play in sequential order.

With the US Financial Markets collapsing all around us, and AIG the latest recipient of $85 Billion from Taxpayer Generosity, I'm all tapped out. I don't have any more money to give to Uncle Sam to help our corporations that can't manager their own finances.

I'm struggling to pay my bills, put gas in my car and give it an oil change every 3000 miles. That weekly carwash? History. And it's hurting too because the spiders are moving in and setting up house with their webs.

I'm resisting spending on Credit Cards, and I've essentially stopped dining out. I might not even be able to make it home for Thanksgiving this year! Something's gotta give. I need help. I miss the good life!

I'm not asking for $85 Billion, just a few thousand will do just nicely. If all of my readers would be kind enough to send just a dollar or two to my paypal account, I can return to the life of leisure!

My Paypal address is . Whatever you can send, I will be most grateful.

And from the AP, here's the latest on AIG:

WASHINGTON (Sept 17) - The U.S. government stepped in to rescue American International Group Inc., one of the world's largest insurers, with an $85 billion injection of taxpayer money. Under the deal, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

The government steps in again to save a struggling U.S. company. This time, it's the world's largest insurer AIG. In exchange for a 2-year $85 billion loan from the Federal Reserve, the government will receive a 79.9 percent equity stake in the company.

AIG's chief executive, Robert Willumstad, is expected to be replaced by Edward Liddy, the former head of insurer Allstate Corp., according to The Wall Street Journal, citing a person it did not name. Willumstad had been at the helm of AIG since June. A call to AIG to confirm the executive change was not immediately returned. It was the second time this month the feds put taxpayer money on the hook to rescue a private financial company, saying its failure would further disrupt markets and threaten the already fragile economy.

AIG said Tuesday it will repay the money in full with proceeds from the sales of some of its assets. Under the deal, the Federal Reserve will provide a two-year $85 billion emergency loan to AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

The move was similar to government's seizure on Sept. 7 of mortgage giants Fannie Mae and Freddie Mac, where the Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke. The Fed said it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy. It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.

The decision to help AIG marked a reversal for the government from the weekend, when it refused to use taxpayer money to bail out Lehman Brothers Holdings Inc. Lehman, which filed for bankruptcy protection Monday, collapsed under the weight of mounting losses related to its real estate holdings. The White House said it backed the Fed's decision Tuesday.

"These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy, " White House spokesman Tony Fratto said.
After meeting with Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke in a late-night briefing on Capitol Hill, Congressional leaders said they understood the need for the bailout.

"The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times. Hearing of these plans, you have to stop to catch your breath. But upon reflection, the alternatives are much worse," said Democratic Sen. Charles Schumer.

In a statement late Tuesday, AIG's board of directors said the loan will protect all AIG policy holders, address concerns of rating agencies and buy the company time to sell off assets. "We expect that the proceeds of these sales will be sufficient to repay the loan in full and enable AIG's businesses to continue as substantial participants in their respective markets," the statement said. "In return for providing this essential support, American taxpayers will receive a substantial majority ownership interest in AIG."

New York officials said the deal helps stave off a fiscal crisis for the state. AIG is based in New York. "Policy holders will be protected, jobs will be saved," New York Gov. David Paterson said Tuesday night. The Fed's move was part of a concerted push to help calm jittery markets and investors around the world. On Tuesday, the Fed decided to keep its key interest rate steady at 2 percent, but acknowledged stresses in financial markets have grown and hinted it stood ready to lower rates if needed.

The central bank also pumped $70 billion into the nation's financial system to help ease credit stresses. In emergency sessions over the weekend, the Fed expanded its loan programs to Wall Street firms, part of an ongoing effort to get credit flowing more freely. The stock market, which Monday posted its largest point loss session since the Sept. 11, 2001, terrorist attacks, recovered Tuesday after the Fed's decision on interest rates. The Dow Jones industrials rose 141 points after losing 500 points on Monday. AIG's shares swung violently, though, as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent - and another 45 percent after hours.
The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.

The worries were heightened Monday after Moody's Investor Service, Standard and Poor's and Fitch Ratings lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance - such as banks and other financial companies - would have found themselves without protection against losses on the debt they hold.

Thanks for reading.

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Designing Hilary said...

So does that mean American taxpayers won AIG? If so, I hereby announce a reduction in my car insurance rates.

September 18, 2008 8:06 AM
Matthew S. Urdan said...

I don't know what this means. The US Government gets almost an 80% ownership in AIG. So AIG Becomes a government insurance agency?

This is a massive mistake. None of the other private insurance companies would ever be able to compete with AIG; and should Liberty Mutual and State Farm and Nationwide and AAA all fail and need bailouts, would the government gobble them up too at our expense?

This is really getting scary and I think our government is close to bankrupting this country.

September 18, 2008 8:20 AM
Anonymous said...

While I, too, have concerns about the government bailouts of Bear Stearns, Fannie Mae, Freddie Mac, and AIG, I think we need to look very carefully at the larger issues. How does all of this relate to your lives, not only in terms of increased Government debt, spending and taxes, but how it affects other aspects of our lives, in terms of ability to get financing for a new home purchase or other big ticket items, what the failures might mean in terms of the future of insurance, what it means to our retirement accounts.

As an example, many people have retirement accounts with firms that have invested significantly with Fannie, Freddie, Lehman and AIG and are likely to see their retirement account balances decline.

I've written more about it in a blog post,
My Role in the Collapse of Lehman Brothers

Stop by, and join the discussion there.

September 18, 2008 8:50 AM
Lady Rose said...

The whole thing just makes my head spin and I certainly don't have the answers - but bailing out companies like this doesn't seem to be the answer.

September 18, 2008 10:23 AM
Matthew S. Urdan said...

Orient-Lodge--I think the way it relates to all of our lives is that our out of control spending and use of credit needs to end and that we are in the beginning of a very deep recession if not depression.

Lady Rose--unfortunately, since so many companies have 401K investments and other investments in AIG--which is also the world's largest insurer, if AIG were allowed to go under, the effects would apparently be greater than an $85 billion bailout. But I don't have the answers and all this is making my head spin.

An out of touch republican president, a democratic controlled congress that failed to step up and address these issues. Our two-party system of government is broken, all they do is point fingers at each other. It has to end. That is one thing that I do know.

September 18, 2008 10:38 AM
kml said...

As a taxpayer I now own a portion of this $85 billion monster - I want to sell my share - any takers?

September 18, 2008 11:29 AM said...

I have sent several hundred dollars to your paypal account - in Monopoly money.

September 18, 2008 11:30 AM
Lucky Girl said...

Does anyone else see the coming trend of the gov't buying out many large companies and the country becoming one gigantic "company town"? Or do I read too much sci-fi?

Matt, are you still planning to send me a peanut butter story?

September 18, 2008 12:50 PM
KentuckyGal said...

You and me both, buddy. :)

September 18, 2008 1:29 PM
Ken Armstrong said...

Dude I would *so* Paypal you but the cat just ate my wallet... wait... no, just a hairball. :)

September 18, 2008 6:07 PM
SizzlingPopcorn said...

It looks like you guys are switching to government-funded companies instead of private-funded ones! Isn't that what your enemy countries do?

September 19, 2008 7:36 AM

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