Today, the U.S. government agreed to lend $85 billion to American International Group (AIG) in exchange for a 79.9% percent stake. Per Bloomberg:
The Federal Reserve "determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,'' the Fed said.
The agreement, supported by the Treasury Department, will keep New York-based AIG in business, averting a failure that could have threatened more financial companies and added to chaos in world markets. Losses industrywide could have totaled $180 billion if AIG collapsed, according to RBC Capital Markets. ... ... ...
The two-year loan will "assist AIG in meeting its obligations as they come due,'' the Fed said in its statement. The federal lifeline will allow AIG to sell assets in an orderly fashion rather than at distressed prices, said a person familiar with the agreement. ... ... ...
Interest will accrue on the outstanding balance at the three-month London interbank offered rate plus 8.5 percentage points.
Over the weekend, AIG was asking the Fed for $40 billion. That grew to $75 billion yesterday. Today the amount needed to save AIG was as high as $100 billion. AIG closed with a market cap of $10.62 billion. A 79.9% share based on close would be a share worth $8.5 billion. They are lending ten times that amount.
Before the bailout, Jim Cramer, a so-called permabull, made a case for financial meltdown if AIG was not bailed out in this video:
I was reminded of this classic video:
And here was a great parody response:
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