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Five weeks
Five weeks after the government launched an unprecedented bailout to save the private company from bankruptcy, AIG has so far burned through $90.3 billion of government credit.
How many weeks are in a year? Fortunately crude extrapolation is not always the best way of making an estimate, but it still seems this problem is not yet under control. The change in ownership has not brought superior results.
The article, by the way, details how Treasury may spend money on other insurance companies too.
Posted by Tyler Cowen on October 25, 2008 at 06:18 AM in Current Affairs | Permalink
Comments
Clearly, things are not yet under control. Also, it's going to be difficult-to-impossible to get them under control while the economic crisis continues to rage.
However. The terms of AIG's initial $85B loan specified that 8.5% be paid on unused portions of the loan facility and 8.5% plus LIBOR be paid on money actually borrowed. So there was no real incentive to avoid hitting the loan hard and fast.
Obviously it doesn't sound good that they're running through money like that and it's going to be hard to sell off pieces of the company in this market but the fact remains that the loan was explicitly designed to promote using it.
Posted by: blighter at Oct 25, 2008 9:33:46 AM
blighter,
Your comment is correct in so far as the facts go, but I don't really see your point.
It is true that the terms of the loan basically required that AIG use the all 85 billion dollars. I believe that the terms of the agreement were written that way to insure that government would have control of AIG. The thing that staggers me is that AIG has already use more then $85 billion and it is claiming that it is going to need even more down the road.
Can you really claim that terms of the original loan encouraged them to go over the 85 billion dollars that was originally agreed to?
What I expected to happen is for AIG to quickly draw down the 85 Billion dollars and then stop for a while. I can't say I would have been shocked to see them come back to trough next year, but I never imagined that 85 billion dollars was not enough to get them through 5 weeks.
Posted by: Ape Man at Oct 25, 2008 11:43:10 AM
It's easy to post a lot of collateral in a market panic. The real question is how much uncollateralized exposure remains? Let's hope management has been unwinding exposure at a loss.
Posted by: DK at Oct 25, 2008 12:13:07 PM
"The change in ownership has not brought superior results."
How do you know this, Tyler? You seem to assume you know what would have happened if AIG management wasn't changed. It is very easy to imagine how things could have been much worse if the government had not stepped in. While far from perfect, Lehman provides the closest counterfactual, and it wasn't pretty...
Posted by: mike at Oct 25, 2008 12:21:19 PM
I'm feeling queasy with all of this recession talk!
Posted by: Baby at Oct 25, 2008 1:27:55 PM
Why should this surprise anyone?
The bailout's not going to make any difference if Obama's elected.
People are dumping stock left and right worldwide because:
In America, they're already resigned to possibility of having a Communist in the White House and a Stalinist Congress.
Elsewhere they know America is the engine of freedom and enterprise, and it's about to murdered by Obama and his New Nazis.
Socialism Stalin-tyle and National Socialism Hitler-style both have the same efffect. They destroy the economy of any nation that allows them to live, breed and take over.
Posted by: DemocratsAreFascists at Oct 25, 2008 1:49:40 PM
[I relish the thought that posting right after DemocratsAreFascists will make whatever I say seem reasonable.]
I think there's a lot of ignorance about insurance companies' situations -- and perhaps a certain conspiracy of silence about it. Or, it may just be that there aren't many journalists who have much experience with the insurance industry.
Posted by: ZBicyclist at Oct 26, 2008 12:37:01 AM
Obama is going to murder free enterprise?
Won't it have to be alive when he gets to the White House for that to happen?
A Republican administration get little opposition from Democrats when it comes to wrecking capitalism and Republican members of Congress get bought off with pork to go along with whatever Bush and company propose.
So whats left for Obama to mess up?
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