Fed To Loan A.I.G. 85 Billion

In an incredible move, the Fed reversed its decision from Sunday night and decided to loan the struggling insurer AIG $85 billion. Unless backed by the government, the insurer would have followed Lehman Brother suit into bankruptcy. AIG’s struggle stem from credilt default swaps:

Credit default swaps are a type of credit insurance contract in which one party pays another party to protect it from the risk of default on a particular debt instrument. If that debt instrument (a bond, a bank loan, a mortgage) defaults, the insurer compensates the insured for his loss.

Author: range

I'm mathematician/IT strategist/blogger from Canada living in Taipei.

4 thoughts on “Fed To Loan A.I.G. 85 Billion”

  1. I don’t think the Fed has a choice because the ramifications if they had not intervened, the impact would have been felt around the world. When the financial markets have settled down, there needs to be a period of reflection and if necessary, more regulation and oversight in the this sector.

  2. I don’t think that the Fed had a choice either. Otherwise, it would have been another Black Monday. The whole credit default swap and other complex derivatives remind me of the junk bond situation years ago. They should just be regulated, that would stop companies from going wild using these.

  3. It is time that American tax payers are not called on to foot the bill for bad business managers. When the govt bails out corporations like this, you then have a situation where profits are privatized and debts are socialized. Where is the equity in this scenario? Market forces by nature take care of bad business. That is the way it works. Is it painful at times? Absolutely. However, pain is a good thing. If we didn’t feel pain, how would we know something was wrong and therefore make corrective decisions? Govt bailouts are delaying the inevitable and actually promote more bad business with the expectation of further bailouts. This was the wrong thing to do, as we can already see other corps getting in line for bailouts, such as Ford and GM, etc. WRONG, WRONG, WRONG….

  4. I agree with you, it’s the wrong thing. This won’t teach Wall Street any lessons, since they know that they can always have the govt bail them out. It sets a bad precedent, however I don’t see what else could have been done to stop the downward spiral. Even then, I don’t know if the billions that AIG is getting will be enough to sustain them for long.

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