AIG continues to lead. They are the fastest-falling "Insurance Company" in the current world of finance.
Reportedly, AIG faces a deadline of February 28, 2009 or thereabouts -- tomorrow. The reason for the deadline is left unstated. Mary Williams Walsh and Michael J. de la Merced, "As A.I.G.'s Losses Grow, Its Survival Options Shrink" p. B5, col. 1 (New York Times Nat'l Ed., Business Day Section, Wed., February 25, 2009).
Among AIG's alternative choices before tomorrow's deadline are to continue trying to raise capital by selling some of its subsidiaries, or to continue trying to raise capital by asking for more Federal Taxpayer Money in exchange for a Federal Taxpayer share of its business.
The first alternative, to continue to try to raise capital by selling some of the AIG subsidiaries, is not going as well as AIG might have hoped. AIG is reportedly not receiving the size of bids that it anticipated. Its subsidiary, American Life Insurance Company or "Alico," for example, would seem to be an attractive investment in untapped markets of consumers who have not yet been exposed to Life Insurance products. Alico has operations in some 55 countries. However, the bids that AIG has received to date, including from MetLife and AXA, are so small in AIG's estimation that AIG reportedly may take the "for sale" sign down from Alico.
That would leave the alternative of asking for more Federal Taxpayer Money.
The unannounced reason, touched upon in the linked newspaper report, for these hard choices for AIG? AIG issued many Credit Default Swaps. As a standard part of all CDS arrangements, the issuer agrees to uphold a certain Credit Rating. If AIG, for example, fails to maintain the specified Credit Rating, it will face a collateral call under these CDS's to immediately post the full amount of each of these CDS's. (The people indemnified by these guarantees are among the few who still find any credibility in what Credit Ratings Companies have to report.) That is more money than AIG probably ever had, and it is certainly more money than AIG has on hand now.
Credit Default Swaps. Unregulated at the Federal level, unregulated at the State level. How are they going?
Postscript on Saturday, February 28, 2009:
See generally Lauren Silva Laughlin and Richard Beales, "BreakingViews.com, Spreading Pain In A.I.G.'s Bailout" p. B2, col. 1 (New York Times Nat'l Ed., Business Day Section, Friday, February 27, 2009).
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