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Fed rescues AIG

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Now it’s no longer just a rumor. The US Fed is bailing out American International Group with an $85-billion package (you read that right). Apparently, AIG is indeed too big to fail. I tried to camp out of Philamlife chief Joey L. Cuisia’s office this morning (well, I really meant sit really demurely in the lobby) just in case he has time to talk to a lowly journalist. Understandably, however, he was up to his ears with teleconferences and board meetings with this new development, but I’m on call the whole day. Some thoughts that come to mind: Wall Street’s latest convulsions show there might be more casualties out there and all that’s part of the restructuring happening in financial markets. I’ve heard the phrase “the market corrects itself” too many times that it hardly means anything anymore. Now, I think the great white economists might not be speaking in tongues, after all. Second, does AIG’s case reinforce the principle to “go big” when you’re choosing financial products to buy? Certainly, in this case its size saved it, but I’m not yet sure what that means on the regulatory side. The debate is heating up in Wall Street on whether this is the dumbest or the smartest move made by the Fed. What do you think?

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10 Comments

it's more of a takeover than a rescue as the U.S. government will effectively get a 79.9% equity stake in the form of warrants called equity participation notes.
As the Wall Street Journal reports, "It puts the government in control of a private insurer -- a historic development, particularly considering that AIG isn't directly regulated by the federal government."

but i believe it's a good thing, at least for now, since it stabilizes the situation a bit. the alternative, which is bankruptcy (at it really was imminent less than 24 hours ago) would have had significant impact on global financial markets. quite a few people call such a scenario "catastrophic", had it happened. i also think the Fed's move is the better of two choices -- the other one being to cut the Fed rate and just leave AIG on the mercy of market forces.

I believed it is a smart move by federal goverment. US financial market is in a very delicate position. Disorderly failure of AIG would definitely hurt US economy and it will affect us too since there are some components of US economy that we depend on, like export. Slowdown on US consumer spending will hurt exporting countries like Philippines.

so whats next? all companies in S&P 500 will be under fed? how long will 85 BIllion last? there are so many bad assets in AIG's books.....

too BIG too fail is BS.....

"Going Big" so your ass will be saved when your about to collapse may be taken positively by the employees and those that will benefit directly from it but really a company should be more socially responsible. What happens if no one will be there save your ass? The ramifications to the economy are devastating.

hi salve can you enlighten us more on what causes these "wall street convulsions"?

one of the nice moves by the feds so far...... it averted a global meltdown of economy..... really, a lost of confidence that will cause the run

Pepe,

Here's my shot at your question:

Stock trading for the most part is really all about speculations. Every actors and participants in this grand exercise are watchful about the company’s financials - quarterly and YE release, forecast, budgets, news if any of any SEC or FBI probes or investigations and more importantly ratings - to be exact, if there is any ratings downgrade. Whenever there is a ratings downgrade, expect Wall Street to have some mild to wild sell-off for the simple reason that you don't want to hold on to these investments that are worthless and will be worthless so that you could preempt your losses.

I wrote an easy to understand Subprime101 and how the US housing market works to better understand what happened at Wall Street the other day. I hope this helps. Here's the link:

http://reynaelena.com/2008/09/17/understanding-subprime-and-the-us-housing-market/

thanks reyna elena for the info.

hope that b doesnt bring back card check, that would be a soft tyranny

reports report rise non reduction

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This page contains a single entry by published on September 17, 2008 10:00 AM.

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