Back to bailouts

That line in the sand that the feds drew on Monday, deciding to let big banks fail rather than provide a government bailout, turns out to have been drawn in the sand.

The feds bailed out the giant insurer AIG Tuesday evening to the tune of an $85 billion loan.

AIG is the world’s largest insurer.

“It’s a dramatic turnabout for the federal government, which has strongly resisted overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy,” the Wall Street Journal noted.

The company was so sure it was headed for bankruptcy, that it hired a law firm to draw up the papers, the New York Times reported.

AIG fired its CEO, Martin Sullivan, this summer for failing to warn investors about the company’s big losses in the derivatives market, tied to the failing mortgage industry.

He reportedly got $47 million to take a hike, according to Portfolio.com.

  • mark wheat

    Just goes to show how important it is to be shirt sponsor to the greatest football team on the planet.

    Here’s an excerpt from a NY Times article at the weekend about how BIG the footie biz is in the UK;

    “Hence Glazer and his sons, quickly cut a $99 million, four-year deal with A.I.G. to sponsor the team’s shirts.” The Glazers are the American owners of Manchester United!

  • sheldon mains

    Any federal bailouts of corporations should require upper management (past and current) to pay back ALL compensation and bonuses for the last 4 years.

  • sheldon mains

    A friend just suggested my comment about paying back all compensation was too kind. He suggested: “any federal bailout should require the top execs to be placed in stocks or tarred and feathered.

  • brian

    At least in this case we got an 80% stake in the company out of the deal. As long as AIG doesn’t still go under we could make money.

    I think termination contracts for top execs should be honored, but I think companies shouldn’t enter into the kind of contracts that lead to $47 million golden parachutes. No one is worth the amount of money they are paid.

    Unfortunately people aren’t paid for the worth of what they do: professional athletes and CEOs will always make millions while teachers and social workers will be lower middle class.

  • bsimon

    brian writes

    “At least in this case we got an 80% stake in the company out of the deal. As long as AIG doesn’t still go under we could make money.”

    AIG will go under, or at least go under a radical restructuring. The loan (with 80% stock as collateral) is to be repaid by selling off AIG assets. The loan terms are for LIBOR + 8.5%, which means the US Taxpayer is earning 11.38% APR for this loan. Unless the AIG assets are literally worth nothing, the US taxpayer should come out of this one OK.