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The government has announced it will provide an 85 million dollar bridge loan to AIG. Can AIG still go bankrupt in near future inspite of the Bailout. If so, how and why?
yes...AIG is still a corporation just like before, except the government now owns 80% stake. If it goes bankrupt then the losses are borne by the taxpayers. However since the government is now the largest stakeholder and taking a lead role in managing the company they will just print whatever money is necessary to prevent this from happening. Effectively they have nationalized AIG.
Yes when the American government takes over companies, it is called "Nationalizing". When China takes over companies, it is called "dictatorship seizure".
We americans sure know how to purittty up the truth with politically correct verbage.
Among its other businesses, AIG insured mortgage backed securities, now it has to pay up based on the current mark-to-market of those securities.
The government intervened to pay the counterparties to these transactions, otherwise we risked systemic meltdown.
The government is betting that the value of the underlying securities will fall no further, or at least not too much more, that we have reached a bottom.
If by this action and the takeovers of Fannie and Freddie, the value of these securities more or less stabilizes, then AIG will have time to sell other assets to pay off the government stake and the government could possibly even make money.
If, however, the value of these underlying securities continues to plummet, then AIG (now almost 80%-owned by the government) will have to raise more cash to pay off its counterparties or declare bankruptcy. At this point, though, if it declares bankruptcy, that is tantamount to the government declaring bankruptcy, so the government would probably just print more money to pay off AIG's counterparties.
The real issue is that the government sponsored property ownership, an expensive enterprise, in favor relatively unproductive people.
The underlying problem will not go away until US residents can raise the level of productivity of the jobs they are doing, and pushing pencils and selling real estate and insurance to each other are not very productive jobs; on top of that, we allocated real resources to the wrong sectors, like the construction of inefficient housing and the manufacture of inefficient cars given the current energy environment.
We have to go back to the basics and learn how to make useful things more efficiently than others, from shoes and socks to nuclear power plants.
This is amazing. It is also another example of Bernanke and Paulson have misrepresented the actions the government would take. Paulson has made so many conflicting statements that have resulted in so many people losing money. If he was in the private sector he would be arrested for fraud as his misleading actions. There is absolutely no trust in two men nor in the assets on the books of these financial institutions in general.
It is people like Paulson, former CEO of Goldman Sachs, that got us into these mess in the first place. Bernanke is in over his head and has not shown any leadership. They both need to be replaced.
I'd feel a lot better if we had someone more level-headed that understands the structural problems and has been vocal about changes needed since before this whole mess blew up like former Clinton Secretary of Labor, Robert Reich.
I'd feel a lot better if we had someone more level-headed that understands the structural problems and has been vocal about changes needed since before this whole mess blew up like former Clinton Secretary of Labor, Robert Reich.
Most definitely the banks they insured and AIG can fail. I expect them to because the underlying us economy is not creating enough wealth to cover the losses. I would feel better if the system fell through the floor (even if I lost some or most of my investments) and was replaced by a well regulated investment allocation market biased toward productive domestic investments that created real wealth instead of financial frauds that only moved money around.
We let the foxes, instead of the farmers, run the henhouse and the foxes ate the hens faster than the eggs could hatch and grow into chickens. The result is going to be starving foxes and farmers. We need to put the farmers back in charge and hunt down and neuter the foxes.
It will fall through the floor eventually. It all depends on how long the attempts at propping up the unproppable continue. The Fed tried to soothe the markets; it has now failed four times. I can't believe anybody will irresponsible enough to attempt what clearly doesn't work a fifth time. Forget I said (wrote) that. Of course, they are irresponsible enough. But the market is going to win this one. Even those who predicted this are shocked at the speed and momentum of this downfall.
The Fed is out of bullets. At some point-- sooner than anybody thought-- they'll simply put down the gun. (Too bad it's not the foxes getting shot.)
AIG needed a bridge loan to avoid a rating failure... not quite the same as an operational failure. If it was allowed to fail it would have impacted trading around the world hurting millions of people. As distasteful as it is this government action was appropriate.
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