G.O.O.D

Source: Reuters

Life insurance companies, nervous over massive investment losses that could ultimately threaten their viability, are hoping they are next in line to get a piece of the U.S. financial bailout.

They argue federal funds could stabilize their trillions in investments and warn that any failure of a life insurer could dry up a key source of corporate financing.

But U.S. officials are not convinced.

Treasury Secretary Henry Paulson said Tuesday he had not yet decided whether other insurers would get federal funds. The only insurer to get government help so far is American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz), which was saved from bankruptcy with a rescue package that has ballooned to $152 billion.

As the biggest buyers of U.S. corporate bonds, life insurers say they grease the wheel of corporate America. Industry officials insist the failure of a large U.S. life insurer would drastically shrink bond financing, potentially creating another hurdle to the nation’s economic recovery.

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Technorati Tags: Life insurance companies

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.

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Source:  Reuters

American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) shares plummeted after the insurer’s credit ratings were cut, heightening concerns it might file for bankruptcy and cause more turmoil in global markets.

In afternoon trading, AIG shares were down $1.16, or 24 percent, at $3.60 on the New York Stock Exchange, after earlier falling as low as $1.25. The shares, a component of the Dow Jones industrial average .DJI, fell 60.8 percent on Monday.

The shares recovered some early losses after CNBC television said government money might be used in a bailout of the company, but they later fell after the network said U.S. Treasury Secretary Henry Paulson opposed that idea and that a private sector solution wasn’t likely.

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Source: Bloomberg.com

American International Group Inc.’s ratings cut drove the cost of default protection on Wall Street banks to a record on concern that the insurer needs more cash to back $441 billion of credit derivatives.

Credit-default swaps on Morgan Stanley, Goldman Sachs Group Inc., Wachovia Corp. and Citigroup Inc. all traded at record highs as investors sought to hedge against losses on financial companies and to replace hedges they had with Lehman Brothers Holdings Inc., which filed for bankruptcy early yesterday. Contracts on AIG, the biggest U.S. insurer, and Washington Mutual Inc., the biggest U.S. savings and loan, rose further into distressed levels on concern ratings downgrades will cripple the companies.

AIG may have to post as much as $17 billion in collateral after the company was downgraded yesterday, UBS AG analysts said. The biggest U.S. insurer by assets is seeking as much as $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., after posting $18 billion in losses over the past three quarters, according to two people familiar with the situation.

“If AIG goes under, there could be a domino effect,” said Andrea Cicione, a credit strategist at BNP Paribas SA in London. “AIG is very connected to the financial system and it is very connected to the real economy.”

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