Sunday, March 1, 2009

AIG is getting another $30 billion from the taxpayer

Transparency? Where art thou?

Let's look back at the first bail-out of AIG, with the statement from the chief liar of the Federal Reserve, Ben Bernanke:

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets.

That rate has now been cut to LIBOR with no points! And Treasury has given AIG another $30 billion. And that's on top of the $152.5 billion so far!

And now the government buys the assets AIG couldn't sell! And the taxpayer is paying $40 billion for assets that didn't get any bids! Anyone have any idea how this assets will be marked on the Government's balance sheet?

Two weeks ago, the Government was saying AIG was so complex they had no idea what things were worth! So now they bid $40 billion!

The plan reflects the deepening exposure of the U.S. taxpayer to the embattled insurer. The assets AIG is transferring to the government in lieu of cash repayment are difficult to value. A recent auction for AIA, for example, failed to draw any bids. The goal of the original AIG rescue in September was to achieve repayment within two years. The latest version will likely leave the U.S. government entangled with AIG for years to come.

And how many other toxic assets will be off-loaded unto the entities our Government is buying?

And if AIG requires $182 billion, and counting, how much more bad debt lurks in the trillions of derivatives that paper over our banks?

Which is why, Buffett, who's not yet swimming naked, but is starting to tread water said:

Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them.

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