Monday, November 10, 2008

AIG: Deja vu all over again

Government provides record aid package to AIG
By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer
10 Nov 2008
WASHINGTON – In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership.

The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company.
Was there warning?

Yes (but you'd never know it from reading the article):
Concerns rise as AIG blows through 70% of government cash
No asset sales yet, so insurer continues to tap securities lending facility; ‘you’ve got to draw the line’
By Beth Braverman
Financial Week
October 24, 2008
American International Group tapped its securities lending facility with the New York Fed this week for another $7 billion, but it did not draw down any more of the $85 billion bridge loan it received in September, also from the New York Fed.

As of Thursday, AIG had borrowed $72 billion under the bridge loan (that amount has remained constant since Oct. 9), $18 billion under its securities lending facility and $300 million in capitalized interest, according to company spokesman Peter Tulupman. In total, the company had tapped more than 70% of its available credit.
This sounds eerily familiar.

Recall (long distant past): November 2001. As part of a proposed deal to acquire Enron, Dynergy injects $1.5Bn into Enron. Shortly thereafter Enron - at the SEC's insistence - publishes 10-Q quarterly report. The report reveals that:
Enron has blown through the $1.5Bn, and can't say how;
Enron revealed it would have ~$2Bn payment due by end of year;
Enron is technically insolvent: immediate obligations ~ $2.8Bn; $1.2Bn cash on hand.
[Details derived from Kurt Echenwald's Conspiracy of Fools.]
Only the scale is different... vastly different. $1.5Bn (Enron) vs $90Bn (AIG).

The need for re-doing the AIG deal is never really made clear in the article, other than to say that interest payments on the Govt loan were depleting all AIG's cash. Where'd the principal go?

This doesn't sound promising.

1 comment:

  1. All these companies have ten weeks to cash in their chips before the good times come to an end and real fiscal conservatives show up.