Thursday, October 16, 2008

aig bailout hurts who?

Last month, AIG's board of directors entered into an agreement with the Federal Reserve Bank of New York to obtain $85 billion via a two-year credit facility that requires AIG to pay a 2% one-time commitment fee, 8.5% interest on undrawn capital and, on drawn capital, the London interbank offered rate plus 8.5%.

The federal government is getting a 79.9% stake in AIG from the deal.

The interest charges currently add up to $1 billion monthly.

~ Wall Street Journal (October 15, 2008, p. C2)

This is a bailout? The Fed gave AIG an offer they couldn't refuse:

Go broke and get nothing or we'll loan you $85 billion and you keep 20% of your company.

This was not a bailout. It was a buy out. A gun to the head buy out. No one else could come up with that much cash immediately. The government will likely make money on this deal. They're collecting 8.5% interest on the money not borrowed by AIG and about 12% on what is borrowed.

If I were an AIG shareholder, I'd be upset.

I'm a taxpayer, so I'm not.

Be blessed!

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