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And Now AIG is On the Brink

Posted by ELROD in At TMV, Economy, Politics, Society.
Sep 15th, 2008 | Comments

The Federal Reserve is working to encourage JP Morgan and/or Goldman Sachs to float $75 billion to troubled insurer American International Group (AIG). Earlier this evening, bond rating firms downgraded AIG, forcing the company to come up with the money to stay solvent.

AIG won the right to borrow $20 billion from its subsidiaries earlier today, but that did little to solve the larger problem. AIG’s stock tumbled 60 percent today.

The consequences of a failure at AIG are hard to measure. AIG is a counter-party to so many derivatives contracts around the world; its failure would ripple through the financial system.

Keep tuned in. Tomorrow may be more important than today in assessing the status of the financial crisis.

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StockBoySF

A Countrywide, a Bear... a Lehman... each happening a few months apart is something the markets can handle. Everyone in the financial business knows it's inevitable. Everyone wonders, "who's next?"

But with Fannie, Freddie, then Lehman, then possibly AIG and possibly WaMu all happening within a couple of weeks of each other (and within the same fiscal quarter) is downright scary. I think as a whole the financial institutions will survive but there will be more scrutiny on the business with some institutions pulling back. I think that also means some great opportunities for smart business.

I'm still more concerned about gas prices at this point, thankfully gas has come down. Hopefully energy prices will continue to go down during the winter (fat chance of that happening, though).

elrod

I don't think gas prices will have as much an effect on things as the financial crisis. Gas prices are an effect of demand. The financial crisis has the potential to destroy the ability of businesses to invest. If companies retrench with lowered access to capital, people will lose their jobs. Yes, gas prices will come down with the demand. But the pain and suffering will keep going up.

StockBoySF

elrod, I understand what you're saying but I think even if there isn't much business investment people will have jobs. But if energy does go up then people will not spend as much on other, non-essential goods, which will lead to a weaker economy.

But I do go back and forth between these two arguments and maybe it is six of one or half a dozen of the other.

StockBoySF

"The consequences of a failure at AIG are hard to measure. AIG is a counter-party to so many derivatives contracts around the world; its failure would ripple through the financial system."

Here is an interesting article which can provide insight into what elrod is talking about.

http://www.bbc.co.uk/blogs/thereporters/robertp...

StockBoySF

"The consequences of a failure at AIG are hard to measure. AIG is a counter-party to so many derivatives contracts around the world; its failure would ripple through the financial system."

Here is an interesting article which can provide insight into what elrod is talking about.

http://www.bbc.co.uk/blogs/thereporters/robertp...

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