AIG and the USA

A couple of important things to note about this report on the $9 Billion loss that AIG experienced in the 4th Quarter of 2009:

• The loss that they experienced in the 4th quarter of 2008 was a little over 7 times larger than that amount.   That would create a pretty solid case for the fact that the world is no longer coming to an end, at least not as far as AIG is concerned.
• AIG had actually generated a profit in the 2nd and 3rd quarters.   The fact that it’s switched to a loss in the 4th quarter isn’t a good sign.

So, a big company, a big “investment” by the US, and a mixed bag in terms of the results.

AIG posts $9 billion loss – Feb. 26, 2010

AIG posts $9 billion loss
By David Goldman, staff writerFebruary 26, 2010: 9:47 AM ET

NEW YORK (CNNMoney.com) — AIG reported a substantial fourth-quarter loss Friday, largely due to costs associated with selling off large stakes in its insurance businesses to reduce the debt it owes to taxpayers.

The New York-based insurance company said it lost $8.9 billion, or $65.51 per share, during the three-month period ended Dec. 31. A year earlier, AIG lost $61.7 billion, the largest quarterly loss in history.

But recently, the company had begun to turn its financial situation around. Prior to the past quarter, AIG had recorded two profitable quarters in a row.

The fourth-quarter loss was due to billions of dollars in restructuring costs that AIG logged in the last three months of 2009.

In December, AIG sold large stakes in Alico and AIA, two giant foreign life insurance businesses, to the U.S. government. In exchange for those transactions, the Federal Reserve reduced the amount AIG has to repay taxpayers by $25 billion. AIG said it took a $5.2 billion charge for that sale last quarter.

Technorati Tags: AIG, Bailout

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AIG and the USA

I’ve been a fan of Yves for quite some time and I really like the way that she can just lay it out straight.    There’s no denying the way that she thinks but yet she does it with a lot of tact and much more politely than many.

Yves brings up some very solid points about the relationship between AIG and the USA, namely:

• We own AIG
• We should have been raising their rates as their performance faltered, rather than lowering them.
• We should face up to the fact that we’re not going to get our money back from AIG.
• We should start acting like we own them rather than like we currently are.

Unless we change the way we are thinking and acting, the problems in the financial markets are going to continue……

Tom Vanderwell

The Problem With Financial Services Compensation (AIG/Pay Czar Edition) « naked capitalism

Reality check, please. In case you were not paying attention, the US is NOT going to get its money back from its little AIG rescue operation. When AIG came a year to the Federal government a year ago, in desperation, it agreed to a deliberately punitive interest rate (11.50%) because it was confident (or deluded) that it could sell some divisions and pay off the borrowings pronto. Its tune quickly changed, the deal was retraded several times, with the net result that AIG got MORE money and had the terms of its loans made MUCH more favorable.

So let us pause here. If any private sector lender had a borrower pull that stunt, the rates on the old money would have stayed in place and and the incremental money would have been on vastly worse terms. 15%-20% plus even more intrusive oversight would be entirely reasonable.

So let us not forget the first premise: whatever results AIG is reporting are misstated. They reflect an indefensible subsidy from the US taxpayer, one vastly in excess of the already egrigous subsidy of bailing them out without taking control. The extent of government support to AIG means it owns the place from an economic standpoint, yet is perversely loath to act like one.

Technorati Tags: AIG, Bailout Nation

Black Hole

AIG, Eric Lewis

Notorious AIG

Good, though slightly off color, commentary on the AIG mess……

The Daily Show With Jon Stewart	M – Th 11p / 10c
The Notorious AIG – Congress Wants to Blame Someone
comedycentral.com
Daily Show Full Episodes Important Things w/ Demetri Martin Political Humor

AIG, John Stewart

AIG and Banks

Some interesting conversations on Charlie Rose with Hank Greenberg (former CEO of AIG), Meredith Whitney and others…..

Hank Greenberg and Meredith Whitney are people who know what’s happening and deserve to be listened to…..

AIG

Morning Market Update

So what’s on tap for today?

Consumer Price Index – came in a “little” higher than the markets had anticipated but not high enough to have a big impact on the market.

AIG – the word on everyone’s tongue…..  What’s the big deal about AIG?   Let me try to break it down very simply:

• AIG signed some really lucrative contracts with their employees back when times were good.
• AIG ran into some significant financial hurdles and is in the process of getting their third bailout by the US government.   We’re now looking at the US Taxpayer owning 80% of AIG and AIG is still paying the “bonuses” that were originally signed in their contracts.
• AIG executives are saying that they have to pay the bonuses because the employees would quit otherwise (these are the employees that drove the company into bailout mode, right?).  So, what would the loss of these employees really matter?
• AIG is also saying that they can’t renege on the contracts.   But, if a company goes under, doesn’t that give them the right to rewrite contracts?   If not, what about the mortgage cramdown issue?   That’s when a bankruptcy judge can rewrite the terms of a mortgage (and a mortgage is a contract).
• People are angry about bailing out a company that is costing us so much money and then still rewarding the top level executives bonuses.

Did you notice how I tried to remain very “civil” about it?   There’s a lot of emotion and ill will about it and I didn’t think that we needed any more.

So what’s up with mortgage rates?  
So far, they have been very stable today.   We’re at 5.25% on a 30 year 0 pts refi and 5.0% on a 30 year 0 pts purchase (under $417,000 and with credit scores over 720).   Fifteen year is .125% less than that.

Recommendations:  In light of the Fed’s meeting today and their announcement in a little over 2 hours, I’d recommend cautiously floating.   I think there is a very real chance that the Fed will do or say something that will cause at least a temporary easing in mortgage rates.

I’ll be posting my “Fed Translated” interpretation of what they said as soon as possible later today.

Let me know if I can help,

Tom Vanderwell

AIG, Market Update

Why does this AIG mess matter for the housing and mortgage markets?

For a couple of reasons:

1. The way that the government has handled the AIG scenario hasn’t inspired confidence in the government’s handling of the financial mess and we need confidence in order for our economy to recover.
2. There are a lot of people who are struggling financially right now and to hear stories about $1 Million plus bonuses when we, the tax payers, now have bailed out AIG 3 times doesn’t play out well.

It’s a confidence and trust issue.   The people who are running AIG and the people who are running Washington are not showing that they have the trust and confidence of the average US citizens.   Until we can restore confidence in today’s markets and the institutions that run our financial world, we won’t see a solid recovery.

That’s why the AIG mess matters to the housing and mortgage markets.

Tom Vanderwell

AIG

AIG – This Makes Me Mad…..

Okay, this makes me mad.   AIG puts together a 21 page document outlining how important they are and how the world is going to come to an end if they fail, but never once do they acknowledge any “responsibility” for the fact that they are failing?    Excuse me, but a company can’t need 4 bailouts without doing something wrong.

Read the “please bail me out” 21 page excuse and let me know if you can find any “claim for responsibility…..”

AIG Failure without Excuse?

Tom Vanderwell

Morning Market Update for Monday, March 2

Well, hang on to your hats, it’s going to be an interesting week (to say the least!)

• AIG announced a $61 Billion loss for the 4th quarter of 2008.   They also announced that they are getting an additional $30 Billion from the US government in an effort to stay afloat.   From what I’ve been able to read, it sounds like the far reaching effect of a default by AIG would be really really bad.   But at the same time, according to my calculations, they’ve lost a little more than $28 Million per hour in the 4th quarter.   That works out to $470,000 per minute or about $3.7 Million in the time it takes me to write this.
• HSBC announced that it is basically pulling out of the United States as it’s earnings fell by 70%.  It’s going to try to raise $17 Billion in additional capital.    Good luck with that.
• The CEO of Freddie Mac resigned today.   Said he wants to go back to the banking industry.   Ask yourself a question – if someone wants to go into banking in this market, they must really want to get out of their existing job, don’t you think?
• Consumer Spending and Income both posted surprise gains in January.  While not discounting it, remember that one report does not a trend make.

There are a LOT of economic and financial reports due out this week.   The biggest ones are the jobs report for February that comes out on Friday and the report that is supposed to come out on Wednesday about how Fannie and Freddie are going to do 105% loan to value refinance loans.

So what’s up so far with mortgage rates?   Nothing.   We’re still at 5.25% for a 30 year refi and 5.0% for a 30 year purchase with 0 pts and a 720 credit score or higher.

Stay tuned,

Tom Vanderwell

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Market Update

$61 Billion?

From what I’ve heard, that equates to over $400,000 an hour in losses.

Expect a nasty day in the stock markets and an upward trend on mortgage rates.

Going to be a tumultuous week.

Tom

AIG reports fourth-quarter loss of over $61 billion – MarketWatch

AIG, the New York insurer, which separately received a new rescue package from the U.S. government on Monday, said its fourth-quarter loss widened to $61.66 billion, or $22.95 a share, from the $5.29 billion loss in the year-earlier period. Continued severe credit market deterioration, particularly in commercial mortgage-backed securities, and charges related to ongoing restructuring-related activities weighed down results

AIG

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