US Nationalizes American International Group

The administration of George W. Bush turns out to be a raging bunch of pinkos. Overnight, the government loaned $85 billion to troubled insurance giant American International Group in exchange for 79.9% of the company. That’s right. Mr. & Mrs. America now own the insurance company that the financial hotshots decided was too big to fail. Actually, they got a good deal; $85 billion at Libor plus 8.5% (11.31% at the moment) for two years, backed by over $1 trillion in AIG assets.

Marco Annunziata, an analyst at UniCredit SpA, said in a note to clients, “This is to all extents and purposes a controlled bankruptcy.” He explained that the “punitive” interest rate “makes it extremely clear that this is not a subsidy extended to keep the company afloat but rather a stranglehold that makes AIG unviable while ensuring that its obligations will be met.” Bigshots at the Fed agreed.

The Fed’s statement explained why the government stepped in. 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 stated, “AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis.”

Some people weren’t buying it. The BBC showed film this morning of people lined up in Singapore to get their annuities and such. That speaks more to the credibility of the US government than anything else, and it isn’t positive.

Add in the de facto nationalization of mortgage companies Fannie Mae and Freddie Mac not that long ago, and one comes to the realization that Mr. Bush has tried to turn the entire country into a red state – it seems the Republicans are entitled to join the International Socialist Organization.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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