So much for “free” markets. And where do you suppose the Federal Reserve is getting $85 billion dollars from exactly? Yea, most probably out of thin air.
Source: money.cnn.com
In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.
The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.
Officials decided they had to act lest the nation’s largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won’t have to go through a tumultuous fire sale.
“[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 in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today’s rates.
AIG will sell certain of its businesses with “the least possible disruption to the overall economy.” The government will have veto power over the asset sales and the payment of dividends to shareholders.
2 Comments
I am really scared that the recent takeovers of now AIG, IndyMac, Freddie, and Fannie are signs of a movement towards socialism. I have posted a blog with other information about this takeover. Someone please tell me it is not as bad as it sounds!
http://averagepolitics.wordpress.com/2008/09/17/government-takeover-of-banks-is-this-socialism/
I don’t think it’s as bad as it sounds, it’s worse, in that these somewhat obvious moves towards Socialsim are only stepping stones on the way to full blown Totalitarianism.
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