Fed Agrees to Loan AIG $37.8B

by **Stephanie** Thu Oct 09, 2008 8:20 am

Apparently, the $85 billion from last month wasn't enough.

http://www.foxnews.com/story/0,2933,434749,00.html

CHARLOTTE, North Carolina — The Federal Reserve on Wednesday agreed to provide insurance giant American International Group Inc. with a loan of up to $37.8 billion, on top of one made to the troubled company last month.

Under the new program, the Federal Reserve Bank of New York will borrow up to $37.8 billion in investment-grade, fixed income securities from AIG in return for cash collateral. These securities were previously lent by AIG's insurance company subsidiaries to third parties.

The arrangement will help AIG secure funds on an as-needed basis, the New York-based insurer said in a statement.

As of Monday, about $37.2 billion of securities were available for loans under AIG's securities lending program.

On the brink of failure last month, AIG was bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. In return for the two-year loan, the government received warrants to purchase up to 79.9 percent of AIG.

As of Sept. 30, AIG had drawn $61 billion on the credit facility, of which about $54 billion has gone toward its securities lending and AIG's financial products area. The rest of the money has been for other liquidity needs amid an "unprecedented" freezing of credit markets, Chief Executive Edward Liddy said last week.

Last week, AIG said it would sell off a number of business units to pay off its massive government loan. The company didn't specifically disclose all the assets it would sell or the expected prices from the sales. However, the New York-based insurer said it plans to retain its U.S. property and casualty and foreign general insurance businesses, and also plans to retain an ownership interest in its foreign life insurance operations.

Shares of AIG closed down 32 cents, or 9.1 percent, to $3.19 in trading Wednesday.

by sodbuster Thu Oct 09, 2008 8:23 am

Well Steph do you remember saying I was "deceptive" when I said the Insurance companies would have their fingers in this pie before it was mover?

(No apology needed or expected.)

btw fyi most hi-risk loans are required to have mortgage insurance...

by Aaron Thu Oct 09, 2008 8:37 am

Apparently the mortgage insurance isn't working.

by **Stephanie** Thu Oct 09, 2008 8:41 am

Sherm,

AIG was bailout first. The abomination that was passed by Congress last week had nothing to do with AIG or other insurance companies.

Now it's been a while since I had mortgage insurance, but I seem to recall it only paid out if I died or became disabled. That insurance isn't written to payout if you just can't meet your payments.

by sodbuster Thu Oct 09, 2008 8:47 am

"That insurance isn't written to payout if you just can't meet your payments."

Well when I bought my house if you did not have 20% down they required mortgage ins. to pay when the borrower didn't.

And I think I saw on tv last week that was the case with these sub-prime loans and that's why I figured the insurance companies would want rescued too.

And as I recall they said the premiums were real high for the insurance.

I could be wrong and if I am I will acknowledge same... Very Happy

by **Stephanie** Thu Oct 09, 2008 11:20 am

It's been a long time for me. I haven't had a mortgage on a home since 1995. So I could be wrong, but I don't think so. If you don't pay your mortgage, they (the bank) foreclose. No insurance company steps in to rescue you, at least not on the insurance the bank required us to purchase. That said, our down payment was just over 60%. I once took out a home equity loan, on a house I had no mortgage on. That was a number of years later and I can't recall any insurance, although there may have been some. That loan was for less than 10% of the value of the house, so I doubt it.

The one policy I had, I'm about 99.9% certain, only kicked in if one of us died. I don't even think it kicked in on disability, but it may have. I seem to recall it being like a life insurance policy. If I do some serious digging I may find that policy somewhere.

However, if all of these subprime lenders had mortgage insurance that kicked in when they could no longer afford the loans, why are all these homes being foreclosed upon? The insurance would kick in and if anybody would be going after those homes it would be the insurance companies, not the banks. That isn't what's happening.

by sodbuster Thu Oct 09, 2008 11:33 am

Mortgage insurance does not protect the buyer, as I understand.

Only the lender.

So they still foreclose.

Here I found it on wiki... http://en.wikipedia.org/wiki/Lenders_mortgage_insurance

by **Stephanie** Thu Oct 09, 2008 1:08 pm

I never had this type of insurance.

So, if the borrowers had to purchase this insurance, how is it all these foreclosed mortgages are crippling the banking industry and not the insurance industry?

by Aaron Thu Oct 09, 2008 2:07 pm

I pay a PMI insurance becasue my downpayment wasn't 20% of the value of the home. I had no problem at the time as it's only about $35.00 per month, interest free and it was my understanding that the PMI was supposed to prevent exactly what is happening.

As that failed miserably, I've got an appointment next week with my bank and one way or another, the $35.00 is going away. I figure mine and my children's increased taxes as a result of the socialistic bailout will more then cover the $35.00 per month.

by sodbuster Thu Oct 09, 2008 3:18 pm

"how is it all these foreclosed mortgages are crippling the banking industry and not the insurance industry?"

Who said they are not hurting the insurance industry.

That's the point I have been trying to make.

by Aaron Thu Oct 09, 2008 3:35 pm

I haven't heard anything about the insurance industry and the wave of PMI's hurting insurance companies Sherm and the reason I think is simple.

It is not an insurance policy where All State or State Farm pays your mortgate company the full amount of your loan should you default. PMI is nothing more then an additional fee the mortgate company charges the borrower when the loan is greater then 80% of the value of the house. This generally occurs when the homeowner puts less then 20% down payment on the home.

The thinking behind it is, if a mortgage company charges 100 people a PMI then the total sum collected should cover the losses on an acceptable foreclosure rate of 2 to 3 homes. It's the same principal credit card companies use in issuing pre-approved cards to those with low credit scores which is by charging more, any loss will more then be off set by the increased instrest rate. So in essance, a PMI is nothing more then an increased instrest rate for most loans, until the value of the load is less then 80% of the home value.

The problem is with the way home prices have increased over the past 15 years or so and the vast increase in sub prime mortgages the number of acceptable forclosures quickly shrunk and the current PMI rates couldn't keep up.

I think one of the changes we SHOULD see in the very near future is the elimination of sub prime lending, which should lead to the elimination of many PMI required loans.

by **Stephanie** Thu Oct 09, 2008 6:04 pm

sodbuster wrote:"how is it all these foreclosed mortgages are crippling the banking industry and not the insurance industry?"

Who said they are not hurting the insurance industry.

That's the point I have been trying to make.

Two things here:

If insurance companies were paying for all these expenses the banks were incurring as a result of borrowers defaulting on their mortgages, the banking industry wouldn't be in the kettle of fish it's in right now.

I don't think that is what's happening at all. I think the banks were self-insuring these mortgages and expected to make a bundle off the insurance. When so many people went into foreclosure, there wasn't enough money to cover the losses. I don't think it has anything to do with big insurance companies that provide life, auto, and homeowners protect etc.

Aaron, you have one of these policies. Who is it through? Is it through Metropolitan, State Farm, The Hartford Company, or is it something the banks cooked up?

I'm telling you folks with high speed connections need to google the credit union crisis that took place in RI back about 20 years ago. I forget just how long now, but it's been a while. If memory serves Bruce Sundland closed the credit unions either the day of his inauguration or the day after and I think that would have been January of 1990ish.

The credit unions in RI didn't participate in FDIC, they had their own insurance pool. All was well and good until a few of the credit union executives started treating their institutions as their own private piggy banks. A couple of them did some prison time, Joe Mollicone being the guy who got hit the hardest, I think he stole the most.

Seems to me it's like the same thing with these GSE's and banks. If this mortgage insurance wasn't underwritten by an actual insurance company, the fraud they perpetrated in order to justify those enormous bonuses they were collecting left these institutions in a situation where their "insurance" couldn't cover the losses.

by Aaron Thu Oct 09, 2008 6:17 pm

My payment is included in with my mortgage payment. This is a self insured racket designed to increase the interest rates for the banks making the loan.

by **Stephanie** Thu Oct 09, 2008 6:28 pm

Right, so what does that have to do with the insurance industry?

I mean, that was what Sherm is talking about, right?

by sodbuster Thu Oct 09, 2008 7:13 pm

Funny thing the more I learn about this stuff the less I know.

http://en.wikipedia.org/wiki/Lenders_mortgage_insurance

From the above link:

" The cancellation request must come from the Servicer of the mortgage to the PMI company who issued the insurance"

by Aaron Thu Oct 09, 2008 7:15 pm

I can't speak for him. I know that's what I thought up until the point that I went to my closing.

by sodbuster Fri Oct 10, 2008 5:35 am

Well as I understand the risk (insurance) is bought and sold and re-bundled and resold just like mortages are.

Some of it I understand a little bit and some things not very well at all.

i.e. credit default swaps.

But I know we are all in this ship togethor and those who take some perverse pleasure in seeing her sink will feel otherwise before it's over.

by **Stephanie** Fri Oct 10, 2008 7:17 am

Well you're going to have to tell me who is taking pleasure in this. For some reason known only to you, you've got it in your head that those of us who disagree with the bailouts and the handouts that are driving us into debt my great-grandchildren will be paying off take pleasure in seeing this country brought to her knees.

That simply isn't the case. What I'm saying is it's time to put the breaks on this before there's nothing left to salvage. It's time to throw the bums in congress out and end the Fed. It's time to start paying attention to the economists and stop blindly following the same cast of characters who got us in the fix to begin with.

I think it was Einstein who said definition of insanity is doing the same thing over and over again. Yet when I tell you it's time to stop making the same bad choices because those choices will be our doom pdq, this:

But I know we are all in this ship togethor and those who take some perverse pleasure in seeing her sink will feel otherwise before it's over.

is what I get.

by Aaron Fri Oct 10, 2008 8:46 am

As if we didn't already know, this crisis has shown just how much our economy effects other countries. I think it is time that we look at our monetary policy as what is currently being used is part of the reason we're in this mess.

For a long time I won't say I didn't agree with the gold standard but I didn't see the practicality of going back to that standard.

My thinking was that we were better off going back to a Bretton Woods style system.

Now I'm not so sure. I think we have to link to something that will solidify the dollar but at the same time not allow government officials to manipulate the money markets daily, as our current system does now and is the primary reason for our current financial crisis.

I don't want to go down with the ship. I want to get off the ship that's full of holes and held together by duct tape and get on one that's built sound and makes sense to operate in a responsible way that doesn't endanger all of it's passengers.

by sodbuster Fri Oct 10, 2008 9:01 am

While most of us slept the Japanese mkt. dropped another 10% and the Europeans not too far behind.

What we need now is decisive action not squabbling over esoteric abstractions.

by **Stephanie** Fri Oct 10, 2008 9:11 am

sodbuster wrote:While most of us slept the Japanese mkt. dropped another 10% and the Europeans not too far behind.

What we need now is decisive action not squabbling over esoteric abstractions.

Wait..........

I thought the bailout was "decisive action".

by Aaron Fri Oct 10, 2008 9:16 am

What would you suggest Sherm?

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