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**FotoCihasWewb** · 09-17-2008, 08:15 PM

Did you see the interest rate on that loan?

11%!!!!

It is not like they are being given a free ride.

I don't know.

Not only that, but in return for the loan the Govt gets a 79% equity ownership in the company. Remember the P&C and liablility businesses which are core to AIG, are still profitable and will eventually be sold off. The taxpayers will likely make out on this one.

Still I get BR's point. All of sudden Govt interruption of free market dynamics ain't so bad.

@ Jasonik

I really like the analogy, but of course it is only partially correct especially as it relates to motivation. Whereas the Mob's motivation is profit, the Fed's motivation to step up is based on a genuine concern of systemic failure on a global scale. Because Money Market managers from all reaches of the Globe are invested in AIG debt, an AIG meltdown would have resulted in catastrophic consequences on the world liquidity marke . I guarantee that more than one fund would have 'busted the book' had AIG failed. The downstream macro economic consequences and global liquidity consequences would have been beyond severe and in fact may have resulted in a worldwide recession.

The Treasury and Fed's approach to bailing out FI's is pretty clear at this point. They will take action in cases where failure will result in system-wide consequences, and will let companies fail where downstream systemic failures are unlikely to result. Let's hope they get it right.

09-17-2008, 08:15 PM	#41
FotoCihasWewb Join Date Oct 2005 Posts 374 Senior Member	Did you see the interest rate on that loan? 11%!!!! It is not like they are being given a free ride. I don't know. Not only that, but in return for the loan the Govt gets a 79% equity ownership in the company. Remember the P&C and liablility businesses which are core to AIG, are still profitable and will eventually be sold off. The taxpayers will likely make out on this one. Still I get BR's point. All of sudden Govt interruption of free market dynamics ain't so bad. @ Jasonik I really like the analogy, but of course it is only partially correct especially as it relates to motivation. Whereas the Mob's motivation is profit, the Fed's motivation to step up is based on a genuine concern of systemic failure on a global scale. Because Money Market managers from all reaches of the Globe are invested in AIG debt, an AIG meltdown would have resulted in catastrophic consequences on the world liquidity marke . I guarantee that more than one fund would have 'busted the book' had AIG failed. The downstream macro economic consequences and global liquidity consequences would have been beyond severe and in fact may have resulted in a worldwide recession. The Treasury and Fed's approach to bailing out FI's is pretty clear at this point. They will take action in cases where failure will result in system-wide consequences, and will let companies fail where downstream systemic failures are unlikely to result. Let's hope they get it right.
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