Sunday Musings: Back To The Cookie Jar

No surprise in this story as MarketWatch reports that “Fed to lend billions more to AIG:”

The Federal Reserve announced Wednesday it was lending billions of additional funds to cash-strapped American International Group Inc.

Under the program, the New York Federal Reserve Bank will provide $37.8 billion in additional cash to certain domestic life insurance subsidiaries of AIG in return for investment-grade, fixed-income securities.

AIG already has an $85 billion line of credit with the Fed. As of last week, AIG had used $60 billion of this loan, according to Fed data.

This new program will allow AIG to replenish liquidity, the Fed said. At the same time, the securities will provide enhanced protection to U.S. taxpayers, the central bank said.

In a separate statement, AIG said the New York Fed is prepared to borrow securities to extend AIG’s currently outstanding lending obligations where those obligations are not rolled over or replaced by transactions with other private market participants.

The arrangement will help AIG secure funds on an as-needed basis, the company said.

AIG recently put many of its businesses up for sale to try to repay the government loan.

The insurer, which had to be saved from bankruptcy last month by a Fed, said it wants to keep its main property and casualty insurance businesses in the U.S. and abroad.

AIG came under fire in Washington this week as members of Congress, the White House and Democratic presidential candidate Barack Obama said the firm should not have spent $200,000 on an expensive retreat at a luxury hotel after receiving the government bailout. AIG said the event was for independent life insurance agents, not for AIG executives.

Why not have a few more parties. Once you get a commitment that you will be bailed out no matter what, why not reach in the cookie jar again? What’s another $37 billion among friends?

Personally, I just have to question the insanity behind all of these bailouts. Once the $50 trillion derivatives market starts to crumble, there is no entity large enough to lend a helping hand. The combined world economies can’t print enough money to support that perfect storm, should it ever decide to make a black swan appearance.

As I announced Friday, I will be heading to Germany for my annual visit, so my blog posting will be more irregular.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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