Subprime mess, blame, winners, losers?

The Commercial Insurance side of AIG is rock solid. They have more than enough capital there to solve their problems on the Financial side but that cannot and will not be touched. They unwisely were heavily invested in the subprime fiasco and now must raise about $40B. Pieces will be sold off but potential buyers are trying to affix ownership stipulations. CEO is trying to get a "bridge loan" from the FedReserve to buy some time but that's still being negotiated. The City of NY has ponied up $20B because a defunct AIG would be fatal to downtown Manhattan. It's all a big game of Poker right now. Hopefully AIG will come out of this leaner and meaner, but the Insurance side is well positioned.

 

If I'm not mistaken doesn't the "insurance" side invest their monies using the "financial" side...

 

It has been estimated that the takeover could cost taxpayers $25 billion.

 

govt. loaning AIG 85 billion, gets 80% interest in AIG. course if they go broke, taxpayers get 80% of nutin. This the day after they let Lehman go bankrupt. I can't follow this action, it's too big, complex and fast for me. I just feel its not good.

one pundit said the difference is that Lehman was insolvent and AIG had a liquidity problem but otherwise is solvent.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAkvusf5Ld7M&refer=home

 

AIG Inc. is the parent. AIG Commercial Insurance is autonomous. There is, in essence, a "Chinese Wall" between the two. There are no insurance funds being diverted to the parent in order to resolve the cash crunch. I regret that a government bailout was necessary but AIG is too big to be allowed to belly
up. This was released earlier this afternoon:

 

Its all relative, the provided insurance for mortgage security holders, which are now defaulting meaning they have to pay on policies from the mortgage security holders that bought all these meaningless mortgages that have failed. So they have been stuck with a 40 billion dollar bill in policy pay outs. Which means they have to borrow money from their subsidaries to help pay these policies. Their failure would have had a negative effect on our economy.

 

what does "bailout" exactly mean?

this is not giving $$$ away, and its not even a loan, right? its an investment. this is different from what was done for Bear-Stearns, right? what was that called?

 

The government gets an equity piece into AIG of 80%, being optimistic if AIG makes it, then the govt could make money from the equity piece, however its a "voluntary" piece. Meaning that when they see fit to take the equity if and when AIG rebounds and shows profits.

 

ok, right. so then why are both the situations with AIG and S&L crisis referred to as "bailouts"?

i think loose usage of this term gives an overly pessimistic view to the public.

 

It's a bailout in the sense that AIG could not raise (or borrow) the money any other way. Without the loan, AIG was kaput. AIG expects to pay off the loan, with interest, within 2 years by selling off parts of their Trillion dollars in assets. The bailout just gives them time to sell in an orderly fashion.

Look at the bright side. Taxpayers having ownership stake in AIG means you are now my boss.