Super Moderator
Location: essex ma
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overnight, it became clear that aig was too big to allow to fail.
Quote:
Federal Reserve rescues AIG
Highly unusual decision effectively nationalises insurer
Paulson insists chief executive steps down
The US government has seized control of the world's biggest insurance company, AIG, in an $85bn (£47bn) emergency rescue to avert a "disorderly" bankruptcy which threatened to wreak havoc with fragile financial markets.
After a marathon day of negotiations in New York, the Federal Reserve reluctantly agreed to lend taxpayers' money on a two-year basis in return for a 79.9% stake in AIG.
The highly unusual decision effectively nationalises AIG by transferring control to the central bank. In a sign of the level of alarm about the weakening financial system, the Bush administration set aside its usual orthodoxy of avoiding intervention in the free market.
In a statement released late last night, the Fed said it had concluded that a "disorderly failure" of AIG could "add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance".
AIG employs 106,000 people in 130 countries and sells 12m policies annually in Britain - including travel insurance and product protection under retailers' own brands such as Boots, Argos, Comet and Sainsbury's. It is shirt sponsor to Manchester United football club.
The treasury secretary, Henry Paulson, insisted that AIG's chief executive, Robert Willumstad, stepped down as a condition of the deal. He is to be replaced by Edward Liddy, a former boss of the insurance firm Allstate. AIG's board approved the rescue package at a late-night meeting.
Crippled by losses on policies insuring investors against default on exotic financial products, the firm had less than 48 hours to find sufficient cash to meet a rash of contractual obligations. It has been teetering on the brink of following Lehman Brothers into bankruptcy - a scenario which horrified financial experts who said the reverberations would be felt by policyholders, trading partners and investors around the globe.
President Bush was quick to lend his backing to the bailout. "The President supports the agreement announced this evening by the Federal Reserve," said a White House spokesman, Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."
The rescue comes a week after a decision to rescue two enormous mortgage companies, Fannie Mae and Freddie Mac. But there are likely to be questions about inconsistency in policy since no government aid was forthcoming to support Lehman Brothers when the Wall Street bank collapsed on Monday.
The Democratic chairman of the Senate banking committee, Christopher Dodd, asked: "Tell me why this situation deserves that kind of infusion of support, whereas Lehman Brothers did not."
The treasury secretary travelled to Washington last night to brief Congressional leaders. Leading Democrats lent their support, although they suggested that laissez-faire government policies had contributed to AIG's predicament.
Barney Frank, the influential chairman of the House financial services committee, told the New York Times: "This is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it."
The Fed, which engaged Morgan Stanley for advice, had shopped around unsuccessfully for a private-sector solution to AIG's problems. Leading banks such as Goldman Sachs and Morgan Stanley rebuffed appeals to provide funds, as did the world's richest man, Warren Buffett.
As rumours of a bailout leaked onto trading floors on Tuesday afternoon, a mood of relief swept the market and the Dow Jones industrial average closed up 141 points to 11,059 - clawing back some of the losses made on Monday when the market suffered its sharpest fall since September 2001. The Australian stockmarket, among the few global exchanges to be open when the bailout was confirmed, rose by 1.2%.
The terms of the bailout give sweeping powers to the Fed. The $85bn loan is collateralised by all of AIG's assets and the Fed can veto dividend payouts to the insurer's shareholders. AIG's shares, which had already collapsed by 93% since the beginning of the year, will be left with little value.
Experts said the interconnected nature of financial institutions was becoming increasingly clear - and was causing mounting alarm at the prospect of a major bankruptcy.
"It might not just bring down other financial institutions in the US. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."
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Federal Reserve rescues insurer AIG with $85bn bailout | Business | guardian.co.uk
aig collapse would have put into serious jeopardy the entire neo-liberal/"globalizing capitalist" financial order, the network of flows that has long outstripped the purview of nation-states. over the past 3 days, somewhere in the area of a trillion dollars has been pumped into this system by the fed and central banks from around the world---the main system of flows, what neoliberalism is really about, autonomous capital flows operating in a spatially segregated virtual region moving independently of any coherent relation to the wider social world, motoring a new concentration of wealth and a radical reconfiguration of the geography of political and socio-economic power---while the social consequences are abandoned to the play of abstract forces---one of the consequences of neo-liberalism---here used to designate an entire ideological configuration--is an extreme extension of one of the main logics you saw fully in place under fordism--the dominant order legitimates itself through service delivery, through the fact of operative flows rather than through the location and effects of them. when the location and effects of these flows generates radicalized social inequality, the problem is talked away as being a function of the "natural" consequences of climates in the second nature of markets---but when flows themselves are seriously endangered, THEN you have a political Problem.
so you see what neoliberal structures look like, what the situation of the nation-state is really in the new order, how irrelevant populist conservative discourse is to the main project neo-liberalism is geared around---so you see the consequences of the collapse of politics onto the fact of activity, onto the fact of flows---so you can piece together the relation between neoliberal social policies in any given space--which is "let em choke, the don't matter"--because functionally, we don't matter---risk reduction, and the focus of neo-liberal attention.
you see a host of reasons why neo-liberalism is cooked, why is must and should be cooked, why some other logic has to be put into place.
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a gramophone its corrugated trumpet silver handle
spinning dog. such faithfulness it hear
it make you sick.
-kamau brathwaite
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