AIG in desperate troube

[coppercrutch]

All because of an insurance company going bust;)

 

Wars have been fought over less !!

 

No interest rate cut in the US, cant see the markets liking it.

 

Strange move. Are they eventually starting to realise that just cutting rates every month is doing sweet **** all ? All this after letting a big Bank go bust as well.

 

How very strange. Serious change of tack.

[david mcgee]

Bloomberg saying the Fed may consider a bridging loan to AIG.

Markets have just jumped upwards.

[coppercrutch]

Bloomberg saying the Fed may consider a bridging loan to AIG.

Markets have just jumped upwards.

 

You have got to love it.

 

This bridging loan. It is a bridge to where exactly....

 

There is nowhere to go !!

[david mcgee]

You have got to love it.

 

This bridging loan. It is a bridge to where exactly....

 

There is nowhere to go !!

 

All it is buying is time.

AIG will need to do a quick fire sale.

Warren Buffett will pick up the gems on the cheap.

The rich get richer.

[coppercrutch]

All it is buying is time.

AIG will need to do a quick fire sale.

Warren Buffett will pick up the gems on the cheap.

The rich get richer.

 

Almost as if it were planned all along...This is one conspiracy theory that has more legs than most...it happens over and over again !!!

[The Old Tolbooth]

I'm ready.

 

 

You look younger than I imagined mate

[david mcgee]

Almost as if it were planned all along...This is one conspiracy theory that has more legs than most...it happens over and over again !!!

 

It is true that pensioners, small shareholders and people in low paid jobs who can least afford to lose them are generally the biggest loosers.

 

Not to say some relatively rich people will suffer also.

[scott herbertson]

For the first time i'm glad my wife has spent all that money over the last few years brushing up her Mandarin Chinese

 

 

 

 

 

 

 

 

 

At least we'll be able to beg to our new masters

[Geoff Kilpatrick]

Acually since the Reagan and Thatcher eras policies telling the state to get out of the way of business and individuals have held sway. Let the market function and we'll all be better of. Keynes will be smiling in his grave.

 

Yes the state should get out of the way of business - government is there to set the rules of the game, not to play the game.

 

As for Keynes, his economics has never died contrary to popular belief. Indeed, even Thatcher dropped monetarism quietly in the early 80's when the set monetary targets were never hit. What did die was the nonsense of deficit spending which led the UK to go cap in hand to the IMF in 1976.

[Sheriff Fatman]

Trying to get your money out of a bank that looks like it is going tits up - is not what I would call 'idiotic' action.

 

The compensation scheme has never been tested in a situation like this. If you would be happy to leave that in the hands of the Government and the FSA then good luck to you. However many did not. You can't exactly blame them. Why wouldn't you take your money out whenever you wanted ?

 

It is when the vast majority of them would have lost zero money if the worst had come to the worst, and the fact that they caused the bank vastly more problems than it had already. The Bank of England loan was nothing unusual, in fact it is exactly the way things are supposed to happen. Every single financial commentator was constantly telling people that there was zero chance of a problem with their savings, and yet all the sheep rushed to their branch to withdraw all their money, and complained when they had to queue and that their money wasn't there. Of course it wasn't there, no bank branch holds all the money deposited in it's customers accounts on site, in fact in the vast majority of banks the cashline machine holds more money than the safe. Their panicing and sheep like behaviour led to the massive run on the banks shares, which led to the government having to basically buy the bank to save it.

[Sheriff Fatman]

Oops, double post

[coppercrutch]

It is when the vast majority of them would have lost zero money if the worst had come to the worst, and the fact that they caused the bank vastly more problems than it had already. The Bank of England loan was nothing unusual, in fact it is exactly the way things are supposed to happen. Every single financial commentator was constantly telling people that there was zero chance of a problem with their savings, and yet all the sheep rushed to their branch to withdraw all their money, and complained when they had to queue and that their money wasn't there. Of course it wasn't there, no bank branch holds all the money deposited in it's customers accounts on site, in fact in the vast majority of banks the cashline machine holds more money than the safe. Their panicing and sheep like behaviour led to the massive run on the banks shares, which led to the government having to basically buy the bank to save it.

 

I am sorry but there is one reason for all this mess. The Financial system is inherently unstable. There is NEVER enough money there - in the branches, background or anywhere else to give everyone their money. That is a massive constant risk that is part of the 'system'.

 

A system that is that risky and built on COMPLETE CONFIDENCE AT ALL TIMES WITHOUT FAIL and nothing else is always only a matter of hours from collapse.

 

That is the reason for this mess. It leads to greed on a massive scale.

 

People wanting their hard earned cash from a bank = Cause of these issues. Give me a break !!!

 

We now have Salmond talking pish on Newsnight. (Not having a go at any SNP angle here before anyone starts ). The boy is your typical economic expert. Completely clueless. It is amazing how so many people in positions of power are so clueless.

 

He is calling for a massive 're-inflation of the economy' to get us through this !!

 

Eh duhhhh Alex. That was the cause of this whole problem in the first place.

 

If anyone wants to know the root cause of these sort of problems watch money masters.

 

BTW - Looks like AIG may be getting Freddie and Fannied

 

This is incredible. Complete and utter carnage.

[Sheriff Fatman]

IPeople wanting their hard earned cash from a bank = Cause of these issues. Give me a break !!!

 

There was no real problem at Northern Rock before the panic merchants and sheep caused massive problems by queueing up outside their branches and all the 'end is nigh' reporting. Beforehand the bank had a temporary cash flow issue caused by other banks who did have problems. That was dealt with by the correct and usual method of a loan from the lender of last resort (The Bank of England). Everything that came later was caused by people who haven't a clue what they are doing panicing and causing a run on the banks shares.

[david mcgee]

Strange move. Are they eventually starting to realise that just cutting rates every month is doing sweet **** all ? All this after letting a big Bank go bust as well.

 

How very strange. Serious change of tack.

 

Holey moley!

 

Its obvious and its horrible.

 

Its deflation, we are heading for a World wide deflationary period .( a killer to get out off)

 

Whats the point in cutting interest rates anymore, you could cut them to zero on both sides of the Atlantic and you still wont get money from the banks.

 

I have just read pages on deflation and hard as ive tried i dont understand a word of it, but its ghastly.

 

Whats the point of buying a car tomorrow when you know the next day it will be cheaper and the next day it will be cheaper still.

 

Everyone saves and stops spending because wages are going downwards.

 

It almost sounds impossible but its going to be reality.

[coppercrutch]

There was no real problem at Northern Rock before the panic merchants and sheep caused massive problems by queueing up outside their branches and all the 'end is nigh' reporting. Beforehand the bank had a temporary cash flow issue caused by other banks who did have problems. That was dealt with by the correct and usual method of a loan from the lender of last resort (The Bank of England). Everything that came later was caused by people who haven't a clue what they are doing panicing and causing a run on the banks shares.

 

I give up.

 

 

 

Holey moley!

 

Its obvious and its horrible.

 

Its deflation, we are heading for a World wide deflationary period .( a killer to get out off)

 

Whats the point in cutting interest rates anymore, you could cut them to zero on both sides of the Atlantic and you still wont get money from the banks.

 

I have just read pages on deflation and hard as ive tried i dont understand a word of it, but its ghastly.

 

Whats the point of buying a car tomorrow when you know the next day it will be cheaper and the next day it will be cheaper still.

 

Everyone saves and stops spending because wages are going downwards.

 

It almost sounds impossible but its going to be reality.

 

Aye the jist of deflation is a tricky one to understand. However it is not pleasant that is for sure. Still not convinced thought. Still a lot of inflationary pressures out there.

 

**** knows !!

[davemclaren]

I give up.

 

 

 

 

Aye the jist of deflation is a tricky one to understand. However it is not pleasant that is for sure. Still not convinced thought. Still a lot of inflationary pressures out there.

 

**** knows !!

 

Surely it's stagflation we are facing.....I knew my '70s economics classes would come in handy again one day.

[david mcgee]

I give up.

 

 

 

 

Aye the jist of deflation is a tricky one to understand. However it is not pleasant that is for sure. Still not convinced thought. Still a lot of inflationary pressures out there.

 

**** knows !!

 

You think so, im not so sure.

 

In previous recessions everyone was striking and wages were spiralling, we are going to see a huge number of unemployed created in a very short period of time.

As many will have huge mortgages and massive credit card debt there will be no shortage of people willing to do your job for less.

 

Petrol prices are on the way down, the demand for commodities is falling.

 

Deflation is an absolute shoe in, we are following the path of Japan and central banks printing more and more money is taking us there in rapid time.

[david mcgee]

Surely it's stagflation we are facing.....I knew my '70s economics classes would come in handy again one day.

 

No, its definately deflation.

[davemclaren]

No, its definately deflation.

 

Oh well, if you're sure, I'll stop rummaging for that old textbook.

[coppercrutch]

I have read very many very smart people on this subject debating what will happen. Inlfation, Deflation or stagflation.

 

All are still possible and I don't know enough to pick one over the other quite yet !!

 

I actually think this period could result in a 'new' description to add to the above.

[coppercrutch]

 

Deflation is an absolute shoe in, we are following the path of Japan and central banks printing more and more money is taking us there in rapid time.

 

Does not compute !!

[david mcgee]

Oh well, if you're sure, I'll stop rummaging for that old textbook.

 

Stagflation is a pussycat, this will be deflation. ( a very ugly beast of whos likes we have yet to encounter)

[Sheriff Fatman]

I give up.

 

It's quite easy to understand. Banks regularly lend each other money. Northern Rock regularly borrowed money from other banks. Because of the sub-prime fiasco in the US quite a number of banks severely cut down on the money they were lending to the smaller banks. Northern Rock tried to borrow money as they had done thousands of times before from other banks but found it hard, through no fault of their own. Northern Rock followed all protocols and usual practices and borrowed money from a lender of last resort. The news leaked out and panic ensued because people who don't have a clue how normal banking procedures happen and listened to other people who don't have a clue how normal banking procedures happen whilst totally ignoring the myriad of proper financial commentators on every single TV channel, radio station and responsible newspapers ran to their branches and were surprised that it didn't hold enough money to give everyone their cash at the same time. The panic withdrawal of funds from the banks caused untold negative press which lead to a run on the banks shares. This lead to a huge decline in the banks assets against its liabilities, making it ripe for take over. The people trying to take it over didn't even attempt to offer a fair price to the shareholders, who rightly declined to sell. To avert further stupidity causing the banks total collapse, the government stepped in and basically bought the bank.

[portobellojambo1]

Surely it's stagflation we are facing.....I knew my '70s economics classes would come in handy again one day.

 

You and your macroeconomic theory words. I am sure there is a more user friendly term for it.

[coppercrutch]

It's quite easy to understand. Banks regularly lend each other money. Northern Rock regularly borrowed money from other banks. Because of the sub-prime fiasco in the US quite a number of banks severely cut down on the money they were lending to the smaller banks. Norhern Rock tried to borrow money as they had done thousands of times before from other banks but found it hard, through no fault of their own. Northern Rock followed all protocols and usual practices and borrowed money from a lender of last resort. The news leaked out and panic ensued because people who don't have a clue how normal banking procedures happen and listened to other people who don't have a clue how normal banking procedures happen whilst totally ignoring the miriad of proper finacial commentators on every single TV channel, radio station and resoponcible newspapers ran to their branches and were suprised that it didn't hold enough money to give everone their cash at the same time. The panic withdrawel of funds from the banks caused untold negative press which lead to a run on the banks shares. This lead to a huge decline in the banks assets against its liabilities, making it ripe for take over. The people trying to take it over didn't even attempt to offer a fair price to the shareholders, who rightly declined to sell. To avert further stupidity causing the banks total collapse, the government stepped in and basically bought the bank.

 

I give up. Again.

 

Are you Adam AppleGarth....

[david mcgee]

Does not compute !!

 

The money the US and UK are printing is flooding into the financial sector to ease liquidity but the financial institutions are holding onto it and wont pass it on.

The Governments would have been better using this money to build schools, hospitals and roads.

At least it would create jobs and the money earned would be spent, stimulating the wider economy.

 

The US and UK are now left holding on to insolvent companies and forced to use tax payers money to keep them afloat.

 

Instead of stimulating the economy they have succeeded in doing the opposite - hence why we are heading for a period of deflation.

[NYC-Hearts]

(Apologize for typos/writing on blackberry)

 

I'm stuck in a meeting, but i just was informed that it's been announced that the fed is going to provide an 85 billion USD facility to AIG in exchange for AIG pledging all assets as collateral and receiving warrants on AIG shares with a view to a quick sale/break up of the company. Equity/debt holders are wiped out.

 

FFS. This is surreal, but the Fed needed to do something. If they hadn't, AIG would have filed for bankruptcy/administration tonight due to its inability to post additional collateral under its trades with its counterpaties. A bankruptcy would have unimagineable disorder into the credit derivative/CDS market: AIG's financial services group is a counterparty to every bank, municipalities, policy holders, etc.

 

And just to follow up on what Rab said earlier: there is of course blame to be laid at the feet of bankers, but, ultimately, a large part of this crisis was brought about by greed of numerous market participants. The greed of lower income families to fulfill the unrealistic "american dream" of home ownership no matter what the terms of the adjustable rate mortgage agreement said. The greed of the asset structuring guru who wanted to sell down mezzanine level positions in his synthetic collateralized debt obligations that were collateralized with credit default swaps. The trader who sells subprime mortage backed bonds knowing there was dubious due dilligence performed on the underlying assets. The credit rating agencies (you really can't forget about them...), who rated what were effectively junk bonds funded by risky Alt A/subprime loans as being investment grade. The regulators, who were well aware of the issues but blithely ignored them. There is oh so much blame to shovel around.

 

But let's keep perspective. I suspect the AIG rescue will bring some much needed rationality to the markets. I-banking will tak? years to recover and reallign itself to the new market realities, but the system will survive.

 

But, ****, it's a good thing AIG wasn't allowed to fail!

[Kalamazoo Jambo]

(Apologize for typos/writing on blackberry)

 

I'm stuck in a meeting, but i just was informed that it's been announced that the fed is going to provide an 85 billion USD facility to AIG in exchange for AIG pledging all assets as collateral and receiving warrants on AIG shares with a view to a quick sale/break up of the company. Equity/debt holders are wiped out.

 

Almost but not quite wiped out, if I'm understanding correctly. Still trying to get my head round the enormity of this deal

 

http://www.nytimes.com/2008/09/17/business/17insure.html?em

 

http://online.wsj.com/article/SB122156561931242905.html?mod=special_page_campaign2008_mostpop

[Geoff Kilpatrick]

At least it'll give the world some breathing space from the risk of contagion. Now it's time to break AIG up as well.

[Kalamazoo Jambo]

At least it'll give the world some breathing space from the risk of contagion. Now it's time to break AIG up as well.

 

From the Fed's statement...

 

"The loan is expected to be repaid from the proceeds of the sale of the firm's assets. The U.S. government will receive a 79.9 percent equity interest in AIG"

 

"Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points."

 

That would be 11.31% at today's rates. Hefty!

 

The statement can be found here...

 

http://www.reuters.com/article/fundsFundsNews/idUSWEQ00017520080917

[Geoff Kilpatrick]

From the Fed's statement...

 

"The loan is expected to be repaid from the proceeds of the sale of the firm's assets. The U.S. government will receive a 79.9 percent equity interest in AIG"

 

"Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points."

 

That would be 11.31% at today's rates. Hefty!

 

The statement can be found here...

 

http://www.reuters.com/article/fundsFundsNews/idUSWEQ00017520080917

 

Good. Although whether the Fed actually sees all of the loan returned is a different question. Joe Sixpack will be out of pocket again.

[coppercrutch]

The money the US and UK are printing is flooding into the financial sector to ease liquidity but the financial institutions are holding onto it and wont pass it on.

The Governments would have been better using this money to build schools, hospitals and roads.

At least it would create jobs and the money earned would be spent, stimulating the wider economy.

 

The US and UK are now left holding on to insolvent companies and forced to use tax payers money to keep them afloat.

 

Instead of stimulating the economy they have succeeded in doing the opposite - hence why we are heading for a period of deflation.

 

I understand the logic behind what you are saying. I have read bout this stuff for ages.

 

I am just not convinced yet. I think what happens next may be 'new ground' so to speak. It may of course just follow the 'Japanese' route that is looking the most likely. However I don't think we should discount anything quite yet.

 

What has happened recently has gone against all sort of 'rules' !!

[Jammy T]

I understand the logic behind what you are saying. I have read bout this stuff for ages.

 

I am just not convinced yet. I think what happens next may be 'new ground' so to speak. It may of course just follow the 'Japanese' route that is looking the most likely. However I don't think we should discount anything quite yet.

 

What has happened recently has gone against all sort of 'rules' !!

 

If you deflate the dollar the price of everything bought in dollars goes up proportionately

 

If you print loads of new dollars you deflate the value of it.

 

But if you were to, say, half the value of the dollar the price of oil would double in tandem, without taking into account pressure on supplies or speculators entering the market....

 

So the dollar might deflate but the price of things we buy INFLATES

 

I think thats how it works

 

I'm still recovering from the fact that some of my ETFs were AIG backed, were suspended yesterday having lost a chunk in value, with the risk of losing the lot, to find that I shouldnt now lose the lot, but the trading is still suspended so I cant get my money out.

 

The FED essentially saved my ass.....I think (still not entirely sure how it will all pan out)

 

God bless America

 

You couldnt make it up though - investing in a gold tracker fund to take the risk away from being in shares.....

[coppercrutch]

If you deflate the dollar the price of everything bought in dollars goes up proportionately

 

If you print loads of new dollars you deflate the value of it.

 

But if you were to, say, half the value of the dollar the price of oil would double in tandem, without taking into account pressure on supplies or speculators entering the market....

 

So the dollar might deflate but the price of things we buy INFLATES

 

I think thats how it works

 

I'm still recovering from the fact that some of my ETFs were AIG backed, were suspended yesterday having lost a chunk in value, with the risk of losing the lot, to find that I shouldnt now lose the lot, but the trading is still suspended so I cant get my money out.

 

The FED essentially saved my ass.....I think (still not entirely sure how it will all pan out)

 

God bless America

 

You couldnt make it up though - investing in a gold tracker fund to take the risk away from being in shares.....

 

I know all the stuff about he value of the currency etc..

 

It is just how this is going to end up that is the question.

 

So the dollar is ****ed. Every import, including oil shoots up = inflation.

 

At the same time however banks are hoarding cash, lending is more and more expensive, everyone is risk averse, people save rather than spend = deflation.

 

These are both happening at the same time. It is far too complicated to work out what is going to be the outcome of all this.

 

The general sentiment is stagflation in the short term. Things we need shooting up in value - Most assets collapsing in value.

 

Short term inflation followed by long term deflation and definite recession - possible depression.

 

Of course you can't discount the possibility of a hyperinflationary event. But that is looking less and less likely. There would require to be a massive release of ready credit available for people to spend. Can't see where that is coming from. As has been stated the lenders are hoarding cash. So even if they get the money - that they are from the central banks - they are not likely to pass it on to the general public.

 

I am discounting nothing though. To do so at this time would be na?ve IMO.

 

Anything can happen !! I think the last few weeks have shows us that.

[coppercrutch]

You couldnt make it up though - investing in a gold tracker fund to take the risk away from being in shares.....

 

I am in the same boat. I have got some gold miner shares though. Oil price has fallen. Markets are in turmoil. Banking system is close to collapse. You would think that these company shares would be soaring - however not !!

 

It has gone against logic the whole way. If you had told me what was coming regarding the economy over the last year I would have gone 'all in' for gold shares. How could they not explode !!

 

But alas this whole thing has been just one mental rollercoaster.

 

Trying to protect your money is nigh on impossible.

 

At least you seem to have got a little lucky though !! Nice one.

[Geoff Kilpatrick]

I am in the same boat. I have got some gold miner shares though. Oil price has fallen. Markets are in turmoil. Banking system is close to collapse. You would think that these company shares would be soaring - however not !!

 

It has gone against logic the whole way. If you had told me what was coming regarding the economy over the last year I would have gone 'all in' for gold shares. How could they not explode !!

 

But alas this whole thing has been just one mental rollercoaster.

 

Trying to protect your money is nigh on impossible.

 

At least you seem to have got a little lucky though !! Nice one.

 

In a recession, what's the point of digging something out of the ground if you can't sell it?

 

The Chinese want bauxite and coal, not gold.

[Jammy T]

In a recession, what's the point of digging something out of the ground if you can't sell it?

 

The Chinese want bauxite and coal, not gold.

 

Because if paper currency keeps on devaluing, and banks / financials cant be trusted not to go bust, gold will take over as the safe haven from an investment point of view

[Jammy T]

I am in the same boat. I have got some gold miner shares though. Oil price has fallen. Markets are in turmoil. Banking system is close to collapse. You would think that these company shares would be soaring - however not !!

 

It has gone against logic the whole way. If you had told me what was coming regarding the economy over the last year I would have gone 'all in' for gold shares. How could they not explode !!

 

But alas this whole thing has been just one mental rollercoaster.

 

Trying to protect your money is nigh on impossible.

 

At least you seem to have got a little lucky though !! Nice one.

 

I dont feel lucky yet....

 

As I said elsewhere 3 financial institutions are essentially behind the fall in gold from August (2 behind the silver drop). They cornered the markets with a huge short position (you can find this info out from the Commodity Trading website) the BIGGEST in history I think

 

Anyway, this earned them billions of pounds, and bought the FED a huge boost by helping inflate the dollar

 

BUT the paper market has become a little detached from the physical market to the extent that gold and silver - if you can get your hands on it - is going for a premium when compared with spot prices

 

The shorts have been unwound for gold, but not sure re silver. Gold had got to a spot price that might start puttting junior gold miners out of business so be careful

 

However one junior minor (avocet) has put on 9% today. That together with the unwinding of short positions (for the moment) should signal that this correction has ended.

 

There are some predictions of a rise to November then a deflationary correction deeper than this current one (to the 600s in dollars) before the next steep rise up. Stick with it, it should come good eventually....

[Geoff Kilpatrick]

Because if paper currency keeps on devaluing, and banks / financials cant be trusted not to go bust, gold will take over as the safe haven from an investment point of view

 

The dollar will prevail provided the Chinese and the Middle East hold onto dollars in their sovereign wealth funds.

 

If the US really fired up the printing presses then I would agree but for the moment the US taxpayer hasn't had to fully realise the losses.

[Jammy T]

The dollar will prevail provided the Chinese and the Middle East hold onto dollars in their sovereign wealth funds.

 

If the US really fired up the printing presses then I would agree but for the moment the US taxpayer hasn't had to fully realise the losses.

 

Possibly true - I just wonder for how much longer foreign countries will pile into a currency so close to a collapse of a country which is crumbling financially speaking

 

Why wouldnt China pile into gold instead??

[Geoff Kilpatrick]

Possibly true - I just wonder for how much longer foreign countries will pile into a currency so close to a collapse of a country which is crumbling financially speaking

 

Why wouldnt China pile into gold instead??

 

They might. It depends on how much Chinese businesses need foreign consumers.

 

It also depends on how those selling them raw materials wish to be paid.

[david mcgee]

I understand the logic behind what you are saying. I have read bout this stuff for ages.

 

I am just not convinced yet. I think what happens next may be 'new ground' so to speak. It may of course just follow the 'Japanese' route that is looking the most likely. However I don't think we should discount anything quite yet.

 

What has happened recently has gone against all sort of 'rules' !!

 

The deflation arguement only gets stronger.

 

You would have thought the ammount of dollars the US has thrown at the recent crisis would have weekend the dollar considerably, yet this has not been the case.

 

A weakening dollar would be inflationary, its not happening, i think we have been conned into thinking oil and raw materials are running out rapidly.

 

It suited the green agenda.

 

Nothing i have seen in the last weeks turmoil disuades me from the view that deflations odds has shortened further.

[Super T]

The deflation arguement only gets stronger.

 

You would have thought the ammount of dollars the US has thrown at the recent crisis would have weekend the dollar considerably, yet this has not been the case.

 

A weakening dollar would be inflationary, its not happening, i think we have been conned into thinking oil and raw materials are running out rapidly.

 

It suited the green agenda.

 

Nothing i have seen in the last weeks turmoil disuades me from the view that deflations odds has shortened further.

 

Green energy is fashionable but it costs more and in times of trouble you go back to the cheapest. There is plenty of fossil fuels but it wont last forever, at the rate we use it.

However, the economic upturn we have had in the last few year and the tax breaks that went with it to the companies that were willing to invest has meant that we are now more knowledgeable in to how to manipulate the natural forces to our advantage.

 

We are still along way away from being efficient in some of the technologies but we have made some great progress.