AIG Keeps Sinking
In little over a month, the company has accessed $90.3 billion (nearly three-quarters) of the $122.8 billion in credit lines extended by the Fed in exchange for an 80% stake in the company.
AIG chief Edward Liddy said that the company may soon have to ask for more money if the company is forced to post more collateral for bond holdings that it guaranteed but that are now being downgraded.
Under extreme pressure from NY Attorney General Andrew Cuomo, AIG has agreed to put a hold on paying out performance bonuses to former and current executives.
The impact of the AIG collapse is being felt far and wide. Thirty municipal transit agencies, including those in Atlanta, Chicago, DC, San Francisco, and Los Angeles, are facing the prospect of being forced to come up with hundreds of millions of dollars. The crisis is a result of complicated (but legal) tax dodges between the transit agencies and private banks (explained here in the Washington Post). Basically, the banks paid the agencies large sums upfront that would be repaid in installments over time. Exploiting a loophole in the tax code, the banks saved hundreds of millions in taxes, but split the profit with the transit agencies. The deals were guaranteed by AIG, but now that the insurer is on the skids and the federal government has declared an end to the tax dodge, the banks are demanding that cash-strapped transit agencies hand over hundreds of millions in cash in the next few weeks.
The demands may actually be a bargaining tactic to force Congress to extend the tax breaks.