Darned if this isn't getting entertaining

[peternap]

According to insiders in the AIG talks, The FED will NOT consider a conservatorship because it would trigger default locks.
IF....remember that word.....IF the FED does anything at all, it will not involve bankruptcy.

In the morning, this is going to .70 or 6.00.

The DOW....it could go flat, up because of an AIG deal or lose another 500 points.

What will the night bring

[peternap]

It is looking like a deal may be in the works with the FED. The price of the stock is going down though. I suspect the buyers don't like what they've heard about the deal.

Stock is still trading like mad. As of right now, the total shares sold TODAY, is

One billion two hundred seventeen million one hundred thirty five thousand six hundred and fifty four....shares.

price is 1.99 that's down from 3.75 at close.

[peternap]

They just announced...the Fed will give a bridge loan of 85 billion dollars in exchange for 80% of the company.

I guess there will be a market rally tomorrow although I have no idea what AIG will do since this deal devalues the company severely.

What a mess!

Another 85 billion out of the taxpayers pocket.

[Redoverfarm]

Peter with the recent melt downs I was wondeing what that will do to the average home owner.  Everything is a trinkle down effect. 

[peternap]

John, I can only guess. Nothing of this magnitude has ever happened in this country before. People keep comparing this to the S&L fiasco, but this is much bigger.

My guess is that for people who currently have mortgages, it will not mean much to as far as their loans go. As far as the general economy for average folks, my guess is that it will wash over nearly aspect of daily life. This has gotten far past housing now. Our government now controls the largest part of our private financial networks.

It has also changed the GLOBAL ECONOMY, that we've worked so hard to establish (Good or Bad).

With the AIG deal, the Government is now in THE HIGH LEVEL and GLOBAL insurance business. Think how much trouble insurance companies cause on a daily basis. Malpractice Insurance has destroyed the quality of our Doctors, health insurance directs policy in even the largest companies, surety bonds liability insurance are needed for one man contracting firms and multi million dollar builders.

Look at what AIG is involved in:

General Insurance, Life Insurance and Retirement Services, Financial Services, and Asset Management. The General Insurance segment underwrites various business insurance products, including large commercial or industrial property insurance, excess liability, inland marine, environmental, workers compensation, and excess and umbrella coverages. This segment also offers various specialized forms of insurance, such as aviation, accident and health, equipment breakdown, directors and officers liability, difference-in-conditions, kidnap-ransom, export credit and political risk, and professional errors and omissions coverages. In addition, it provides property and casualty reinsurance products to insurers; automobile insurance products; residential mortgage guaranty insurance products; and second-lien and private student loan guaranty insurance products. The Life Insurance and Retirement Services segment offers individual and group life, payout annuities, endowment, and accident and health policies, as well as retirement savings products consisting of fixed and variable annuities. The Financial Services segment provides aircraft and equipment leasing, capital market transactions, consumer finance, and insurance premium financing. The Asset Management segment operations comprise investment-related services and investment products, including institutional and retail asset management, broker-dealer services, and spread-based investment products.

Even for those of us that sit back and thumb our noses at the world, it touches us through people we buy or sell to and the prices we pay for our imported Chinese tractors.

It's mind boggling.
While I'm not sure Just how it will change things on a consumer level, I am quite sure one of the changes will be.....HIGHER PRICES!

[peternap]

Now to put this in it's best light, here's the deal as I understand it.

AIG received a line of credit with a max of $85 billion.

in exchange AIG will repay any money borrowed at 850 points over libor. somewhere around 11+%.

plus AIG will issue a number of warrants... the value of those warrents are equal to 80% of AIG's equity value. assuming todays value is $10 billion. so the warrants will be valued at $8 billion dollars.

warrants are used because they can be traded, and they can go up in value with the price of the companies stock.

what is not known is the conversion rate on the warrents and the strike price for the warrants.

AIG has a line of credit up to $85billion to be repaid at 11%, in order for AIG to get the FED to do this they gave the FED a bonus of $8 billion worth of warrants. the stock price of AIG will go higher unless it gets shorted all to hell, if they don't the warrants will be worthless. why would the FED risk all that taxpayer money and lose.

CHRYSLER did the same in 1981. the gov't made a very nice profit, chrysler stayed in business and the shareholders got rich.

My bet is because of two things, it will not be structured like the Chrysler bailout. Number one, that loan was negotiated with Congress Directly and two, the sheer size of this.

I also expect this stock will be shorted out of existence in no time at all.