The Federal Reserve has become a majority owner of a (formerly) private insurance company. Or is the Treasury the real owner? I'm not really sure from this statement.
The Fed provided the loan, but does the Fed own the shares? And are the shares common or preferred? Let's see if the Fed's official statement provides more clarity:
If these shares can override both common and preferred, then that's a whole new class of equity. Call it superannuated equity, steroid equity, or some other name with the creativity to match this deal.
What I'm wondering is whether this new loan has been arranged to somehow cancel yesterday's action by the state of New York to allow AIG to borrow from its healthy subsidiaries. Here's the potential conflict: If AIG still borrows from its subsidiaries (presumably the state-regulated ones), it's going to have a hard time getting Uncle Sam's approval to sell assets that are now encumbered by the Fed's two-year loan. Memo to Uncle Sam: Call Gov. David Paterson in Albany, NY and get him to rescind his loan approval; this will give you fewer headaches over the next few months as you unwind AIG's derivatives book.
There must be some fine print in the Fed loan agreement, because labeling the "U.S. government" as the equity owner doesn't clearly delineate who in the government will supervise the loan, exercise the dividend veto, etc. Which agency now owns AIG? Fed, Treasury, Area 51, who exactly? Maybe it serves AIG right to get an agreement like this where the publicly unavailable fine print potentially gives them the short end of the stick. Big issuers like AIG have been selling annuities to senior citizens for years by glossing over the fine print, so this deal is AIG's karmic payback.
The U.S. government is selectively nationalizing its financial services sector. Future MBAs from Wharton and Harvard will have to send their resumes to the Office of Personnel Management at the rate things are going. If my dark prediction comes true, then maybe a military veteran with civil service preference points can finally get a hiring advantage over these Wall Street trust fund preppies!
Maybe in the future we can just cut out the middle man and buy life insurance directly from Uncle Sam. The Amtrak business model is on its way to your brokerage account.
Nota Bene: Anthony J. Alfidi personally holds no position in AIG. However, as a taxpaying U.S. citizen, Mr. Alfidi and all other U.S. taxpayers now indirectly own AIG through their new broker, Uncle Sam. Think about that one.
The Federal Reserve said Tuesday it would provide up to $85 billion in an emergency, two-year loan to rescue AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.
The Fed provided the loan, but does the Fed own the shares? And are the shares common or preferred? Let's see if the Fed's official statement provides more clarity:
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
If these shares can override both common and preferred, then that's a whole new class of equity. Call it superannuated equity, steroid equity, or some other name with the creativity to match this deal.
What I'm wondering is whether this new loan has been arranged to somehow cancel yesterday's action by the state of New York to allow AIG to borrow from its healthy subsidiaries. Here's the potential conflict: If AIG still borrows from its subsidiaries (presumably the state-regulated ones), it's going to have a hard time getting Uncle Sam's approval to sell assets that are now encumbered by the Fed's two-year loan. Memo to Uncle Sam: Call Gov. David Paterson in Albany, NY and get him to rescind his loan approval; this will give you fewer headaches over the next few months as you unwind AIG's derivatives book.
There must be some fine print in the Fed loan agreement, because labeling the "U.S. government" as the equity owner doesn't clearly delineate who in the government will supervise the loan, exercise the dividend veto, etc. Which agency now owns AIG? Fed, Treasury, Area 51, who exactly? Maybe it serves AIG right to get an agreement like this where the publicly unavailable fine print potentially gives them the short end of the stick. Big issuers like AIG have been selling annuities to senior citizens for years by glossing over the fine print, so this deal is AIG's karmic payback.
The U.S. government is selectively nationalizing its financial services sector. Future MBAs from Wharton and Harvard will have to send their resumes to the Office of Personnel Management at the rate things are going. If my dark prediction comes true, then maybe a military veteran with civil service preference points can finally get a hiring advantage over these Wall Street trust fund preppies!
Maybe in the future we can just cut out the middle man and buy life insurance directly from Uncle Sam. The Amtrak business model is on its way to your brokerage account.
Nota Bene: Anthony J. Alfidi personally holds no position in AIG. However, as a taxpaying U.S. citizen, Mr. Alfidi and all other U.S. taxpayers now indirectly own AIG through their new broker, Uncle Sam. Think about that one.
