The S&P and Moody’s downgrades of AIG (AIG) have happened and this will rapidly push this situation to an end… either an end that prolongs the drama or The End.
If the government cannot find a way to ignore their lack of authority to lend to AIG and wiggle out of their suggestion that they will not make the loans, I do not expect another situation to arrive fast enough that could save AIG.
It is very surprising to me to see S&P and Moody’s make this decision without acceptance or understanding by the Federal Reserve and Treasury. Therefore, it would not surprise me to see a last minute bailout program that makes all the past financial creativity exhibited by Bernanke and Paulson look basic. If something like this happens, it will either be a new facility specifically created using some obscure provision in the Fed’s charter or it will just be a giant money laundering process to shove it through an existing conduit, similar to what they did with Bear Stearns on March 14th.
One extreme idea…have some other Central Bank lend directly to AIG. Sounds crazy…right!?! AIG is a global corporation doing business in about 100 countries. If this is a global problem, maybe it is time for a global solution. If this is solely a U.S. problem, then we are probably screwed. But if our government cannot or will not lend to AIG, then I see no other workable deal.
I am not advocating this or any other solution. It has not mattered what I think or what I have said.
This article has 11 comments:
This systemic "bleeding" should be stopped as it could lead to unpredictable consequences .
These problems were created over many (operational) years,now as they are being addressed ,decimation of the financial community is allowed .Rumors in the market allude to selling activity in Lehman(prior to the final outcome) and AIG shares by some prop desks -unbelievable.
On Sep 16 03:16 AM gabe borenstein wrote:
> The real question during this debacle is why did the "short "rule
> was not extended by SEC.This would have allowed the FED ,Treasury
> and others involved for rational solution to the to the issues that
> financial system is facing .The open short interest has reached new
> high as some "hedge funds" are looking for money making opportunity.
>
> This systemic "bleeding" should be stopped as it could lead to unpredictable
> consequences .
> These problems were created over many (operational) years,now as
> they are being addressed ,decimation of the financial community is
> allowed .Rumors in the market allude to selling activity in Lehman(prior
> to the final outcome) and AIG shares by some prop desks -unbelievable.
But I didn't want to get hung up talking about short rules when today the the country will be facing a financial catastrophy of unkown proportions that could bring our financial systems and the worlds to a halt if no solution is found today and AIG declares bankrupcy on Wednesday. The $75 billion AIG is looking for as a bridge loan is just small potatos if AIG goes into bankrupcy and their credit rating is downgraded again forcing trillions of dollars of swaps held by AIG to be unwound and virtually bringing the financial system to a halt.
Kinda sounds like the day the world stood still. Let's hope it doesn't come to that.
Should be an interesting next couple of days.
I find it impossible to conceive that these fantasy losses can form the basis of the destruction of a large, strong business, essential to the functioning of our financial system.
However, a lot of what is happening lately suggests that common sense no longer applies in the market.
The ineptitude of the CEO's and the Board of Directors should also be looked into. Some of it borders criminal if u ask me.
Incidentally, all the ideologues screaming against bailouts are simply fools who have no idea how the system actually works or what the major responsibilities of its parts are. The decision *not* to give loan guarantees on Lehman mortgage debts to allow the rest of the bank to be sold in an orderly manner, has already cost 30 times what a "bailout" would, any counting. Without stopping any of it, as that would have. Paulson simply listened to the screamers and there is hell to pay in consequence.