AIG Told U.S. Failure May Cripple Banks

[conspiracy analyst]

AIG Told U.S. Failure May Cripple Banks, Money Funds (Update5)

By Hugh Son and Scott Lanman

March 9 (Bloomberg) -- American International Group Inc. appealed for
its fourth U.S. rescue by telling regulators the company’s collapse
could cripple money-market funds, force European banks to raise
capital, cause competing life insurers to fail and wipe out the
taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to
prevent a “catastrophic” collapse that would be worse for markets than
the demise last year of Lehman Brothers Holdings Inc., according to a
21-page draft AIG presentation dated Feb. 26, labeled as “strictly
confidential” and circulated among federal and state regulators.

“What happens to AIG has the potential to trigger a cascading set of
further failures which cannot be stopped except by extraordinary
means,” said the presentation by New York- based AIG. “Insurance is
the oxygen of the free enterprise system. Without the promise of
protection against life’s adversities, the fundamentals of capitalism
are undermined.”

Regulators revised AIG’s bailout last week to ease loan terms and
extend $30 billion in fresh capital after the firm posted a $61.7
billion fourth-quarter loss, the worst in U.S. corporate history.
Lawmakers are reluctant to give more support beyond the package
already in place, worth about $160 billion, because they say
regulators haven’t given enough detail about how the funds are being
used or when the bailouts will end.

The Fed is “asking for an open-ended check” and is “not going to get”
it, Senator Robert Menendez, a New Jersey Democrat, said last week in
Congressional hearings.

Global Impact

AIG warned of turmoil around the globe if the government allowed the
insurer to fail, adding “it is questionable whether the economy could
tolerate another shock to the system that a failure of AIG would
produce.” The value of the U.S. dollar might fall, Treasury borrowing
costs could rise and the agency would face “doubts about the ability
of the U.S. to support its banking system,” according to the
presentation, parts of which were reported earlier by the New York
Times. The municipal bond market would be stressed and Boeing Co.
could lay off workers if AIG’s plane-leasing unit folded, the company
said.

“It seems like they’re reaching on this litany of claims they’re
making, some of which aren’t supported” by facts, said Haag Sherman,
who helps oversee $8 billion as chief investment officer of Houston-
based Salient Partners. “They are correct that without the government
stepping in, you’d see big holes blown in the equity of American and
European banks.”

Overseas Seizures

Under the scenarios sketched by AIG, European banks that bought credit-
default swaps might need to raise $10 billion in capital and could
face rating downgrades. Life insurance customers, their faith shaken
in the industry, would redeem some of their $19 trillion in U.S.
policies, overwhelming firms already weakened by the credit crisis,
AIG said.

The $38 billion in support provided by the firm to money- market funds
would be in jeopardy, AIG said, possibly forcing some to “break the
buck.” The term refers to a money fund that suffers losses so large
that it must pay investors less than the traditional $1-a-share value
that gives the short-term funds their reputation for safety.

Outside the U.S., where AIG operates in more than 140 countries, a
collapse could lead to the “immediate seizure” of its businesses by
regulators and could impair “the entire insurance industry within
certain regions,” the presentation said, which added that its
conclusions were “speculative” and a matter of judgment.

Creating ‘Crisis’ Atmosphere?

“Who knows if what they’re saying is true?” said Phillip Phan,
professor of management at the Johns Hopkins Carey Business School in
Baltimore. “A lot of it sounds like conjecture, that if AIG collapses
the rest of the industry will, too. It’s a way of creating a crisis
atmosphere and the sense you have to respond quickly.”

Fed spokeswoman Michelle Smith said the central bank “came to its
conclusions based on our own analysis.” The risks associated with an
AIG failure were “unacceptably large” and could “deepen the current
economic recession,” the Fed said today in a report posted on the
Senate Banking Committee Web site. Christina Pretto, an AIG
spokeswoman and Isaac Baker of the Treasury declined to comment.

If AIG were forced to liquidate its investments, it would have
“enormous downward pressure” on asset classes including municipal
bonds, the firm said. The company’s commercial insurance division owns
more than $50 billion in muni bonds.

ILFC

AIG’s International Lease Finance Corp. is the world’s biggest
aircraft lessor by plane value, and its failure would jeopardize $12.5
billion in orders, causing job losses at Chicago-based Boeing. ILFC
would have to sell its 1,000 planes at distressed prices, “severely
impacting” the aircraft industry. Banks and pension funds holding
about $30 billion in ILFC debt would take losses, the company said.

European banks named by AIG as potentially needing capital if the
insurer fails include the Royal Bank of Scotland Group Plc, Societe
Generale SA, BNP Paribas SA, Banco Santender SA, Danske Bank A/S,
Rabobank Group NV, Credit Logement SA and Credit Agricole SA’s Calyon.

Danske Bank has insured a third of its mortgage bonds through AIG,
which promises a payout of $200 million in case of “extreme high
losses,” the Danish lender said in a statement. The agreement can be
annulled in 2010 and AIG has not yet paid out any money, Danske bank
said.

Credit Logement Chief Financial Officer Eric Veyront said in a
telephone interview that the firm “wouldn’t be directly touched by an
AIG failure.” The company estimates it has about 10 million euros at
risk “at a maximum” on credit-default swaps where AIG is counterparty,
he said.

Buffett Supports Aid

Rabobank sold assets insured by AIG at yearend, effectively ending the
contracts, said Raymond Salet, a spokesman for the Utrecht,
Netherlands-based bank. The transaction didn’t impact Rabobank’s
annual results, he said. Representatives from RBS, Societe Generale,
BNP, Santander and Calyon didn’t immediately have comment.

AIG’s latest rescue package includes equity, new credit and lower
interest rates on existing loans designed to keep it in business.
Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary
Timothy Geithner have said the government must prop up AIG to avoid
damaging the financial system.

Billionaire Warren Buffett, appearing on CNBC today, said the bailout
of “quasi-financial” firms like AIG was necessary, even if everyone
dislikes what had to be done to salvage it.

New York Insurance Superintendent Eric Dinallo said at a March 5
hearing he had received the presentation.

Bailout Beneficiaries

The document doesn’t say which other companies have benefited from
AIG’s repeated rescues. Goldman Sachs Group Inc. and Deutsche Bank AG
were among at least two dozen financial institutions that were paid
$50 billion from the bailout funds received by AIG, the Wall Street
Journal reported, citing a confidential document and people familiar
with the matter whom it didn’t identify.

Goldman and Deutsche got about $6 billion each between September and
December, the Journal said. Merrill Lynch & Co., Societe Generale,
Morgan Stanley, Royal Bank of Scotland and HSBC Holdings Plc were
other counterparties that also received payments, the newspaper said,
citing the document.

AIG’s presentation said that without more U.S. help, investment losses
would mean “AIG will not be able to repay its obligations” and that
cash previously provided by the U.S., which controls a 79.9 percent
stake in the insurer, could be lost. Chief Executive Officer Edward
Liddy, who took over the top job in September, has vowed that AIG will
repay all of its debts to taxpayers.

Potential Job Losses

At AIG itself, failure could have led to dismissals from its workforce
of 116,000, the document said. At that level, the staff is unchanged
from the end of 2007 before AIG’s bailout. The global credit crunch
has led to at least 284,000 job cuts at the rest of the world’s
financial companies, according to Bloomberg data.

The insurer’s first bailout package, crafted last September, later
grew to $150 billion. After failing to sell enough subsidiaries to
repay the government, AIG had to turn to U.S. taxpayers again. The
company may need more support if financial markets don’t improve, the
Treasury and Federal Reserve said last week in a joint statement.

-- With reporting by Fabio Benedetti-Valentini in Paris, Charles Penty
in Madrid, Niklas Magnusson in Stockholm, Martijn van der Starre in
Amsterdam and Andrew Macaskill in London. Editors: Rick Green, Sharon
L. Lynch

To contact the reporters on this story: Hugh Son in New York at
hs...@bloomberg.net; Scott Lanman in Washington at
slan...@bloomberg.net.

[Thermate911]

Talk about arm-twisting. What a bunch of crooks. Maybe no-one's told them the Fed is bankrupt already?

http://www.globalresearch.ca/index.php?context=va&aid=12648

[Disco_Destroyer]

[TonyGosling]

Back in February 2006, LEAP/E2020 estimated that the global systemic crisis would unfold in 4 main structural phases: trigger, acceleration, impact and decanting phases. This process enabled us to properly anticipate events until now. However our team has now come to the conclusion that, due to the global leaders’ incapacity to fully realise the scope of the ongoing crisis (made obvious by their determination to cure the consequences rather than the causes of this crisis), the global systemic crisis will enter a fifth phase in the fourth quarter of 2009, a phase of global geopolitical dislocation.

According to LEAP/E2020, this new stage of the crisis will be shaped by two major processes happening in two parallel sequences:

A. Two major processes:
1. Disappearance of the financial base (Dollar & Debt) all over the world
2. Fragmentation of the interests of the global system’s big players and blocks

B. Two parallel sequences:
1. Quick disintegration of the current international system altogether
2. Strategic dislocation of big global players.

http://www.leap2020.eu/GEAB-N-32-is-available!-4th-quarter-2009-Beginn ing-of-Phase-5-of-the-global-systemic-crisis-phase-of-global-geopoliti cal_a2805.html

[Thermate911]

Does this BBS sometimes not handle long URL's correctly?

Here's another try at Tony's link...
http://www.leap2020.eu/GEAB-N-32-is-available-4th-quarter-2009-Beginni ng-of-Phase-5-of-the-global-systemic-crisis-phase-of-global-geopoliti% 20cal_a2805.html

Meanwhile an extract from:-
http://www.financialsense.com/fsu/editorials/willie/2009/0305.html

[QuitTheirClogs]

The Real AIG Scandal

It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

By Eliot Spitzer
Posted Tuesday, March 17, 2009, at 10:41 AM ET
http://www.slate.com/id/2213942/

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure.

[Thermate911]