Will AIG run low on money again? It's burning through its $123 billion fast

Posted Oct 24th 2008 12:30PM by Douglas McIntyre
Filed under: Amer Intl Group (AIG), Federal Reserve, Financial Crisis

AIG (NYSE: AIG) is borrowing even more money from the Federal government. As of October 23, it had tapped into $90 billion of the $123 billion the government has made available. The insurance giant was set up with the massive credit line on concerns that if it fails, it could bring the global financial and credit system down with it.

According to The Wall Street Journal, the weekly total of AIG's draw-down remains large. "The new total is $7.4 billion, or nearly 9%, more than AIG had tapped as of a week earlier," the paper said. On Oct. 22, AIG's chief executive said the current bailout loan might not be enough.

Since it is a real possibility that the amount of capital available to AIG may be inadequate, the important question to ask now is, what happens if AIG needs more money?

For starters, common shareholders will probably see the value of their holdings go to zero. AIG's shares are already down to under $2 a share -- a sign traders think it will go bankrupt -- compared to a 52-week high of $64.25 (a full year ago). The government owns 80% of the firm now. For people in the stock, it is probably a good time to take whatever money you have left and run.

The more difficult question is how far does the government go in providing funds? The answer is that the amount of capital may have to go much higher. The credit crisis is not getting better. AIG's credit derivative swaps and mortgage-backed paper are falling in value almost every day. If the government still believes that propping up AIG is the key to averting a true global financial meltdown, it will have to extend more credit to the company.

Economists could debate whether AIG had to be saved. But now that the government has set itself up as a savior, it can hardly back down. If AIG were to go bankrupt it could spark a catastrophe which might be bigger than the one caused by the failure of Lehman. That's a risk the country can't take right now.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Tags: AIG, credit crisis, CreditCrisis, economy, featured, financial crisis, FinancialCrisis, inthenews, recession

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Reader Comments (Page 3 of 3)

11-03-2008 @ 8:07PM

steve said...

I don't see way they pay off these derivatives. As I understand them their are rich people gaming with policesholders money. Derivatives holders should be the last paid or better not paid at all. A lot of the players are rich Aribs or oil billionairs.

11-04-2008 @ 9:10PM

kristina a. said...

AIG should have known from the start that such risky systems barely succeed. It's not whether HOW or WHY, what's important is WHEN.

FYI: I found this survey about the current economic downturn and I think it’s helpful to get involved.
http://spreadsheets.google.com/viewform?key=p-XlwgJysoV-gV-D6-1d_XQ

11-12-2008 @ 9:00PM

Allen said...

Read the investigative reports at www.abc15.com about the most recent reported AIG junket, which has prompted Congressman Elijah Cummings to demand the resignation of AIG CEO Liddy. For this, AIG has received yet more taxpayer money! Well, I guess now we know who has the goods on Paulson and Bush!

11-21-2008 @ 10:06PM

vern said...

I think that it is time for these bigshots to feel the pinch. Let the companies fail, period. They had their chance to make a real business out of it and they failed, miserably, let them all walk the unemployment lines for a while until they learn. Bailouts do not teach anybody anything about fiscal management and never will, only failure will do this.

11-20-2008 @ 10:34PM

its almost funny said...

HOW WE ALL KNOW WHAT AIG DID WITH MONEY and we know what they are still doing with the tax payers money.
But three guys show up in jets which may have cost their companies $20,000 and the cabinet is all over them as AIG just blows $440,000 !!!!! Do you know what 440,000 americans could have with just $1000 a family! 440,000 unemployed families couls have had a happier holiday.... 440,000 families could have caughht up on some bills WHY THEY SUCK US DRY!

11-21-2008 @ 2:46AM

Michelle said...

Why are the fed'a dropping the ball on their 700 billion dollar bail out already, I can believe it afterall it is the government we are talking about

11-21-2008 @ 1:35PM

Jack B said...

The first order of business needs to be a federal law against "golden parachutes".

I'm not talking about severence packages for average employees, but blatantly inflated sweetheart deals which give CEOs of failed corporations enough money that if they lived moderately would allow them to retire for the rest of their lives.

Makes you wonder if the guys who wrote "the producers" are giving them career advice

12-09-2008 @ 9:18PM

Dennis said...

I tried to borrow 3000.00 from american general finance company (part of aig) and they said i need collatoral even though i borrowed from them 2 years ago without a problem and paid them back promptly. The point is if they cant trust a retired 45 years of service employee why should we the taxpayers trust them

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