A.I.G. Nightmare

Good afternoon folks!

I hope everyone is having a great weekend. I wanted to talk a little about AIG today. According to The New York Times, AIG has already burned through $61 billion of the $85 billion bridge loan given to them by the Fed:

"The American International Group said on Friday that it had already drawn down $61 billion of the $85 billion emergency bridge loan it received from the Federal Reserve two weeks ago, an announcement that startled credit ratings agencies.

The emergency loan was supposed to buy the company time to sell its troubled assets in an orderly manner. But the sell-off has not yet begun, and now the insurer faces the additional pressure of trying to sell the businesses at a time when potential buyers are having trouble borrowing money.

Moody’s downgraded A.I.G.’s senior unsecured debt on Friday and said it might downgrade other types of the company’s debt, which could make it more expensive for A.I.G. to borrow money and do business.

A.I.G.’s chief executive, Edward M. Liddy, told securities analysts on Friday that $53 billion to $54 billion of the Fed’s loan had gone to shore up A.I.G.’s troubled structured-finance unit and its securities lending business. Another big block of the Fed’s money has been used to support A.I.G.’s daily operations, Mr. Liddy said in a conference call, because demand for the company’s commercial paper has dried up as a result of the worldwide credit crisis.

“The $61 billion draw to date on the facility is much larger than we had previously anticipated,” said Rodney A. Clark, an analyst with Standard & Poor’s, explaining the change in outlook.

A.I.G. is required to pay back its borrowings from the Fed within two years. Mr. Clark said that to raise the money, the rapid drawdown of the loan made it likely that A.I.G. would have to sell off more businesses than Standard & Poor’s had expected.

In response to questions, Mr. Liddy said it was impossible to say exactly how much money A.I.G. would have to raise to pay back the Fed and emerge from its crisis as a smaller company with adequate capital.

“It’s kind of a Rubik’s Cube,” he said. “We need to be very flexible” because of the fluid economic environment.

He said that in addition to using the $85 billion Fed loan, A.I.G. would be able to participate in the $700 billion bailout program signed into law by President Bush on Friday. The additional help from the Treasury might ease some of its financial burdens, Mr. Liddy said."

My Take:

This was startling to me. This is a great barometer to measure how bad things really are out there. We all wonder how bad the balance sheets are inside of our financials. The burn rate of AIG through this Fed bailout money is a good indication that they are probably much worse then any of us realize. Whats scary here is AIG isn't even a bank. Its an insurance company. I would guess some of the banks are in worse shape because they are less diversified.

This article also tells me that the taxpayers aren't getting their money back for awhile. I love the stipulation in this loan that AIG is supposed to pay this money back within two years. HA! Yeah right. Like that's gonna happen. Its a good thing Christmas is coming because they need a "Hail Mary" gift from Santa Clause in order to pay this loan back. Do you think Santa can get $85 billion down a chimney and under a Christmas tree?

Folks, there is no way $85 billion is going to be enough money to allow AIG to navigate through this mess. They have pissed away almost all of it in a matter of a few weeks! Expect this to cost the taxpayers much more.

Let me repeat: If things are this bad within AIG, what in the hell do the banks balance sheets look like? This was a frickin insurance company!

This also shows you how pathetic this $700 billion "rescue plan" is. One company has burned through almost $85 billion in a matter of weeks. How can the this rescue plan "save" the financial system when one company has burned through 1/7th of this amount in weeks?

Bottom Line:

You can rest assured that AIG will be heading back to DC with their hands out asking for more money. Expect Paulson to be doing the same after he burns through his $700 billion.

We need to start asking ourselves where does it all end? When do we start saying NO like any good parent does when a child throws a temper tantrum when they want something that makes no sense?

Washington DC needs to wake up and realize they need to get out of the bailout business before they ruin this country.