1) So AIG has a market cap of $7 billion. 2) The federal reserve acts as a "white knight" and buys an 80% stake in the company in exchange for an $85 billion loan. 3) 2.69 billion shares outstanding before. 13.45 billion shares after. 4) Federal Reserve bought shares. For every 1 share bought, the federal reserve loaned $7.90. I wonder what the interest rate is? 5) Since this is a loan which must be repaid and not a capital infusion (or is it), how does this change the balance sheet of AIG. Sure it can now meet its CDO obligations today, but it still has negative equity and will likely for time to come. Where is Paul Volcker? Surely this arrangement exceeds the Federal Reserve's legal authority. The Fed has the right to do an emergency loan to a non-depository institution at rate equal to the discount window if no other financing is available and failure of the institution could harm the economy. But the Fed can't buy these bullshit shares causing mass dilution for existing shareholders of the company and effectively controlling it. Let the treasury do that nonsense. This is not a role for the Fed. Jim Bunning and Ron Paul must be like, "HOLY SHIT. THEY DID WHAT?!?"
Good that Fed helped AIG keep afloat. Cannot imagine the allround chaos that would result from big financial houses tumbling down. Some UK bank also chipped in for Lehman, still better!
Because this is not putting the Fed on the "slippery slope". Bear Stearns/JPM wasn't either. Now Lehman - that was a DIFFERENT story. Definitely a slippery slope there...
The Fed has no authority to keep it afloat. It can only loan money if no other financing is available. I hope the trial lawyers take this illegal action to the supreme court!
What trial laywers. Fed asked private sector to loan money, they ran like little girls AIG would have had to file for chap 11 tomorrow. Fed stress tested Leh before the leh action and were wrong about the results, they then adjusted the test with the new results for AIG, things would have been very ugly and 85 billion is pocket change to what would have happened.
I think Jeff Macke on Fast Money summed it up well when he said that it didn't matter that the Fed/Treasury don't have the authority to place AIG into a conservatorship. They are the government, so (unfortunately) they can break whatever rules they want. That includes free money for GM, F and Chrysler. Hopefully the official announcement will contain more detail about the loan and the dollar value of the equity stake.
Fuck this! U.S. Dollar is worth 0, despite the fact that forex and u.s. equity markets are strengthening despite total armageddon around them! I'm going to call the discount window and see if I can get a 100k loan to buy hookers.