Five weeks after the government launched an unprecedented bailout to
save the private company from bankruptcy, AIG has so far burned through
$90.3 billion of government credit.
How many weeks are in a year? Fortunately crude extrapolation is not always the best way of making an estimate, but it still seems this problem is not yet under control. The change in ownership has not brought superior results.
The article, by the way, details how Treasury may spend money on other insurance companies too.
Clearly, things are not yet under control. Also, it’s going to be difficult-to-impossible to get them under control while the economic crisis continues to rage.
However. The terms of AIG’s initial $85B loan specified that 8.5% be paid on unused portions of the loan facility and 8.5% plus LIBOR be paid on money actually borrowed. So there was no real incentive to avoid hitting the loan hard and fast.
Obviously it doesn’t sound good that they’re running through money like that and it’s going to be hard to sell off pieces of the company in this market but the fact remains that the loan was explicitly designed to promote using it.
It’s easy to post a lot of collateral in a market panic. The real question is how much uncollateralized exposure remains? Let’s hope management has been unwinding exposure at a loss.
I’m feeling queasy with all of this recession talk!
[I relish the thought that posting right after DemocratsAreFascists will make whatever I say seem reasonable.]
I think there’s a lot of ignorance about insurance companies’ situations — and perhaps a certain conspiracy of silence about it. Or, it may just be that there aren’t many journalists who have much experience with the insurance industry.
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