"The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." --Thomas Jefferson

Wednesday, September 17

Big Brother needs a loan


With the news last night and this morning of another government bailout of a big American company "too big to fail", I am thinking those who hold their insurance policies may want to call someone and get a quote this morning.

AIG which has bought some very well known companies itself, such as Franklin Life saw it's stock drop 97% since 2003 and 60% on Monday. Tuesday AIG was informed it now had an $85 Billion dollar line of credit courtesy of the federal government (tax payers) to keep itself in business.

As a fell asleep last night, I wondered if it seems ironic to anyone else that companies that have proven themselves grossly negligent in the management of their own assets to the point that they file bankruptcy, are now granted huge loans of money from the federal government. Don't get me wrong, the government will presumably make a killing on this loan as the interest rate is LIBOR plus 8.5%. (13.04%) You do the math-no i'll do it for you. It's $30.8 Million dollars a day in interest. But guess what? It's not the federal government's money to spend and I don't know why we the people that pay the taxes are not up in arms over the decision.

Parallel Scenario-Older brother messes up his life dramatically-files bankruptcy and forecloses on his home and has his cars, toys and boat repossessed. Hasn't a penny to his name and owes exorbitant amounts to his creditors. Said brother comes to you-(also broke and in debt up to your eyeballs $9 Trillion and counting) and asks for a loan to pay off his debts and save him from even further financial ruin. You say okay and don't ask the wife/husband nor the bank before spending your kids' college fund on a loan to your financially illiterate and inept brother. Sounds like a winner doesn't it? Might not sound like the best idea, but guess what? We gave an $85 Billion loan to AIG this morning. Now the federal government is in the insurance business and is one of the major players. Good luck with that. Below is a comment made from an AIG press release.

"The AIG Board has approved this transaction based on its determination that this is the best alternative for all of AIG's constituencies, including policyholders, customers, creditors, counterparties, employees and shareholders. AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis. We expect that the proceeds of these sales will be sufficient to repay the loan in full and enable AIG's businesses to continue as substantial participants in their respective markets. In return for providing this essential support, American taxpayers will receive a substantial majority ownership interest in AIG."

Because we'll now get a tax refund based on the $22.4 Billion collected in interest? Or get a check when AIG finally pays another dividend? Don't bet on it! It will be spent wisely I'm sure. Our government has proven itself to be a great steward of the American taxpayers' monies already.

1 comment:

Jaime said...

Wow. You should not have told me that interest per day stat. I threw up in my mouth.