Monday, November 10, 2008

AIG Bailout Is Now at $250 Billion?

The Treasury is in full obfuscation mode. It is putting out some very confusing numbers as to its bailout of AIG. For example today's press release on the bailout said:

The U.S. Treasury on Monday announced that it will purchase $40 billion of newly issued AIG preferred shares under the Troubled Asset Relief Program. This purchase will allow the Federal Reserve to reduce from $85 billion to $60 billion the total amount available under the credit facility established by the Federal Reserve Bank of New York (New York Fed) on September 16, 2008...

In one new facility, the New York Fed will lend up to $22.5 billion to a newly formed limited liability company (LLC) to fund the LLC’s purchase of residential mortgage-backed securities from AIG's U.S. securities lending collateral portfolio. AIG will make a $1 billion subordinated loan to the LLC and bear the risk for the first $1 billion of any losses on the portfolio. The loans will be secured by all of the assets of the LLC and will be repaid from the cash flows produced by these assets as well as proceeds from any sales of these assets. The New York Fed and AIG will share any residual cash flows after the loans are repaid.

Proceeds from this facility, together with other AIG internal resources, will be used to return all cash collateral posted for securities loans outstanding under AIG's U.S. securities lending program. As a result, the $37.8 billion securities lending facility established by the New York Fed on October 8, 2008, will be repaid and terminated...

In the second new facility, the New York Fed will lend up to $30 billion to a newly formed LLC to fund the LLC's purchase of multi-sector collateralized debt obligations (CDOs) on which AIG Financial Products has written credit default swap (CDS) contracts. AIG will make a $5 billion subordinated loan to the LLC and bear the risk for the first $5 billion of any losses on the portfolio. In connection with the purchase of the CDOs, the CDS counterparties will concurrently unwind the related CDS transactions. The loans will be secured by all of the LLC's assets and will be repaid from cash flows produced by these assets as well as the proceeds from any sales of these assets. The New York Fed and AIG will share any residual cash flows after the loans are repaid.

PEU Report takes a stab at figuring out what all this means:

AIG lined up more billions in taxpayer funds. The first $143 billion wasn't enough to save the company. In a confusing, financial magician move, AIG will get $40 billion for preferred stock, $52.5 billion in TARP money for junk assets, and their total debt to Uncle Sam shrinks by $25 billion. That sleight of hand brings the total for AIG to over $250 billion.

Hey, if you spent $250 billion on a bailout of one company, you would try to hide the fact also.

1 comment:

  1. I love EPJ because it's like that psychology experiment, where as long as one other subject says that the two lines are different lengths, then every other subject (as opposed to the confederates) is willing to go along with the minority opinion. But if every other person (who are all confederates) say that the two lines are equal lengths, then many of the subjects conform because they think they must be seeing things.

    I.e., the CNBC headline today said, "AIG Revised Bailout: $40 Billion" or something. It makes it sound like AIG gave back a bunch of money!!

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