AIG Dumps Two Toxic Assets on the Fed

AIG, unable to sell its two "crown jewel" businesses to anyone for real money, has slapped theoretical values on them and transferred stakes to the Fed in exchange for a reduction in the debit balance they have with the Fed.

In layman's terms: AIG tried to sell their two "prime" businesses, AIA and Alico. They couldn't get the price they wanted, so they sold the businesses to the Fed instead. The Fed is getting $16B worth of AIA preferred shares, and $9B worth of Alico preferred shares, and AIG's balance due to the Fed is being decreased by $25B.

Owning massive stakes in the banks and auto industries wasn't enough for the Government, I guess.

This is especially ironic, because it again focuses on the issue of "temporary impairment" of toxic assets. If you recall, banks claimed that the problem was that their assets were still worth 90c on the dollar but that there was just a temporary lack of liquidity which was causing the market to value the assets at, say, 60c. AIG is doing the same thing: they couldn't actually sell their businesses, because no one wanted to pay them their asking price. So they said "well, they're still worth that much," and dumped them on the Fed.

Sold to you, Sucka... Oops - I meant, Sold to ME, Sucka. Crap.

Comments

[Philip Gvinter:]

But the banks super double secret promised that their jumbo prime portfolio with a 7% default rate and tons of stated income and stated income/stated asset loans which are now underwater are worth $.90 on the $1 how can you not believe them?!?!

I am becoming more and more disturbed by the lack of oversight and accountability at the Fed. The video of representative Darryl Issa questioning the inspector general of the Federal Reserve about $2T of loans and getting no answer is truly shocking. The Fed is an incredibly important institution but it should not be allowed to operate in a black box devoid of all transparency and public scrutiny.

Jun 26 08:24 AM

[Drew Horn:]

The fundamental issue is the FED has no "accountability" to congress, the president, voters, banks, investors, or anyone else. They can print as much money as they so decide and by so doing, threaten the worlds economies. There isn't a mechanism to change or override their actions. The FED's first purpose was to be a national bank, much like the Bank of England but they have morphed into an uncontrolled, unaccountable influence on all of us and they are about to get a lot more regulatory power (without demonstrated skills or wisdom to use it).

The reason the FED continues to have too much power is that our politicians are unable to act logically and responsibly in matters of financial management. Thus, it is hoped, the FED will act as a counter influence on the excesses of elected government. But the result has been that the FED is also acting irrationally and the result has been that both fiscal and monetary policies are threats to capitalism.

Does anyone have a good solution to the problem?

Jun 26 10:18 AM

[H. T. Love:]

On Jun 26 10:18 AM Drew Horn wrote:

> The fundamental issue is the FED has no "accountability" to congress,
> the president, voters, banks, investors, or anyone else.
<snip>

The fundamental problem is that it is a useless parasitic appendage that was specifically avoided by the framers of our constitution. The intent was that treasury should provide the money for the nation, not that we would enable a privately-held institution to issue money and increase the debt of the nation and enrich private investors in so doing.

> Does anyone have a good solution to the problem?

There are some links in this comment.

seekingalpha.com/autho...

Read the article containing the comment too. Good stuff. But there are three parts, so allow some time.

seekingalpha.com/artic...

HardToLove

Jun 26 10:56 AM

[Philip Gvinter:]

Truth be told the treasury could assume the functions of the Fed. Or the Fed could be allowed to continue to serve these functions if proper oversight was legally mandated.

I have no problem with the concept of fiat currency, a central bank and the need to control interest rates and the money supply. I do have a problem with this task, which seems best left to a fully transparent government agency being done by a privately owned corporation which lacks full transparency and any level of meaningful oversight.

I understand the benefits of keeping the Fed independent and free of political influence but still feel that the lack of transparency and oversight are highly disturbing.

Jun 26 11:10 AM

[InnocentsAb...:]

Sounds like the Fed is becoming the de facto U.S. national hedge fund.

Jun 26 12:05 PM

[jayminho:]

so..
sorry my ignorance, is this good or bad ?
i think its good for aig, isnt it ?
they end up, for good or worst, paying back.. at least a little, and reducing the fed ownership at their common stock, isnt it ?

Jun 28 07:39 PM