Cheer up. You knew that you were the proud owner of the world’s largest insurance company. You may not have been able to afford insurance. Now, you may not be able to afford the insurance company.
I bet you thought $85 billion dollars was a lot of money. It bought you 80 percent ownership in AIG. Just as you, I considered it to be a substantial sum. You and I just ain’t sophisticated enough to understand big numbers.
I remember Dennis O’Keefe having two months to spend a million dollars in the 1945 version of the movie, Brewster’s Millions. Later, Richard Pryor had only 30 days to dispose of $30 million in the 1985 version.
Now, I come to find out that AIG has already run through $61 billion of that $85. They needed $7-8 billion just for ‘daily operations.’ At that rate they could make it through the Summer, were it not for the fact that they have already spent nearly $54 billion to shore up its structured-finance unit and its securities lending business. That’s just two of its multitudinous parts.
If you can remember back a day or two, you might recall that the primary reason for the $700 billion bailout, yes, bailout, was because credit has dried up. This little infusion of cash into the banks was only expected to help, not cure the problem. Let’s connect the dots.
AIG is supposed to pay back the government, you and me, within two years. How can they do that? They just have to sell off most of the parts of the corporation. But, what if potential buyers have a little difficulty borrowing the money to purchase those parts? Ut, oh.
Beyond that, AIG will need to borrow more funds during this period. After all, that $7 billion plus was just for the first month of ‘daily operations.’ Because of the news I have imparted, the rating companies are lowering AIG. This means the money they borrow will be more expensive, i.e., the interest rates will be higher, if there is money to be borrowed.
AIG expects to be one of those drawing on the new $700 billion kitty. How long will that last with AIG just one of many sucking on that teat? It’s comforting to know that all of those Masters of the Universe on Wall Street are there to help their peerless leader, Hank Paulson, spend our money. As I said, “Dig Deeper.”
{ 3 comments }
I started to follow your blog
Many thanks.
Im sure I can speak for all that we would love to see a follow up to this post.
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