Money | 09/16/2008 10:45 am

AIG NEWS: AIG Credit Downgrade, Shares Plummet, Federal Reserve Steps In

By The Staff at wowOwow.com

AIG’s ship sunk deeper yesterday amid falling stock prices and poor credit ratings across the board. Now the insurance company American International Group has very little time to sell assets and receive loans to keep itself afloat.

Shares of AIG fell 42% to $2.70 in recent premarket activity Tuesday after earlier in the premarket session rising 5% to $5, The Wall Street Journal reports. The American International Group, Inc., stock plummeted 61% on Monday amid the U.S. stock market’s worst daily point plunge of 504 points — the worst since the first day of trading after 9/11, and the sixth largest drop in history.

Standard & Poor’s, Moody’s and Fitch ratings all downgraded AIG’s long- and short-term standings.

Standard & Poor’s lowered its rating on AIG to A- from AA-, and Moody’s Investors Service cut its rating to A2 from Aa3. Fitch Ratings and AM Best also downgraded AIG, MarketWatch reported at 8:25 AM Tuesday.

To buy time, the New York Post reports that New York Gov. David Paterson loosened the borrowing regulations for AIG, permitting the Federal Reserve to lean on Goldman Sachs and Morgan Stanley to lend American International up to $75 billion. Paterson said at a press conference yesterday that, like the fall of Lehman Brothers, the fall of AIG, the great insurance company, would have a rippling effect across different industries.

Agreeing with Paterson was Hank Greenberg, former chairman and CEO of AIG, who said that AIG is vital to not just the American company, but around the world. Greenberg told CNBC this morning that American International not only needs a bridge loan from the Federal Reserve but also relief from rating agencies in order to avoid bankruptcy.

"My net worth is in AIG … I never believed it possible for AIG to become impaired – never," Greenberg told CNBC.

In addition to AIG’s woes and the bankruptcy-court filing of Lehman Brothers Holdings, Inc., the financial markets were also rattled by a $50 billion shotgun wedding Sunday of Merrill Lynch to Bank of America. The marriage made Bank of America the biggest bank in the country.

Tell us: Do you think AIG will sink or swim?

24 Reader Comments (so far…) Sign In or Register to comment

“Standard & Poor’s lowered its rating on AIG to A- from AA-, and Moody’s Investors Service cut its rating to A2 from Aa3. Fitch Ratings and AM Best also downgraded AIG, MarketWatch reported at 8:25 AM Tuesday.” Even with this downgrade, AIG is well within investment grade, indicating that its balance sheet supports lending facilities necessary to meet capitalization requirements.

By K O on 09/16/2008 10:22 am

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Kitty, I do agree with Robert Reich in that the problems were there before the houseing crisis. I still think that the financial markets were playing fast and loose quite a while before the sub-primes started unraveling, and I remember asking someone about 2 years ago why Greenspan seemed so unconcerned. Back then, he was so sacred that the people looked at me as though I had commited a sacrelige, but I am starting to hear more along these lines. I read Reich often and he has had the jitters for a long time about the financials and lack of regulations. http://www.usnews.com/articles/opinion/2008/09/16/robert-reich-governmen…

By Diana T on 09/17/2008 4:48 pm

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http://www.reuters.com/article/topNews/idUSHKG1567720080916 It looks like AIG has about a day to gets its plan together, but it’s so huge that I think the FED and others will have to shore it up. One good thing will come out of this as good things do, and that is that this whole busniess of regulations, oversight and transparency will have to be re-instituted. My friends will be relieved because then I will quit complaining about it like I have for years.

By Diana T on 09/16/2008 10:30 am

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Alan Greenspan said “This is the worst economy I’ve ever seen.” While McCain is being critized for his optimistic (as opposed to realistic) remarks. But then he’s a self-admitted ignoramus on economics and the Internet, when the Internet is driving everything today including complex trading programs. Why does McBush comment when he doesn’t get it. Our ecnonomy that has the biggest deficits and the greatest borrowing in the history of the world, and at its center explosive, destabalizing unregulated derivatives that in value exceed the entire world economy by at least 12 times. For anyone who that thinks that’s OK, I’ll paraphrase Einstein: never underestimate the vast universe of stupid. San Francisco’s economy has been strong…but yesterday you could feel the entire City holding its breath. I took a taxi late in the afternoon, the driver said it had been a good day that he’d made numerous airport runs. I asked him “What people are talking about today?” “The economy.” He has two teens and had lost his job in high tech, and lost over a million in stock options in the high-tech bust and never recovered. Very nice, clean-cut well spoken man. I gave him a $20 on a $7 fare and he was so perked up it made me sad. How far had he fallen to be excited about $13.?

By HoBo Economy Thanks Bush-McSame on 09/16/2008 12:16 pm

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Suzanne - I had a dinner last night with some folks (loudly debated politics) and need some help with resources in order to address an issue that came up. You seem to have good links and knowledge of where to find resources. Anyway… this particular couple is in a very high income bracket. they didn’t start out that way. they started out together 40 years ago as dirt poor teenagers. but built two very sucessful businesses. My husband and I didn’t start out that way and aren’t in their tax bracket. but wouldn’t be considered “middle class” anymore. The conversation led of course to a discussion about how democrats just want to take all of “their” hard earned money and give it to people who don’t want to work. I tried to argue that wasn’t true. that the democrats platform at this time and place is that the economic benefits in republican administrations have gone to the very wealthy while at the same time damaging the middle class. Which by the way turned into me believe it or not having to defend that middle class people WORK AS HARD as wealthy people. Shocking I know… but true. Anyway my friends challenged me to come up with “which policies” specifically were the democrats talking about? I didn’t know. Can you give me links or info as to specifically what to point to when trying to defend a platform that the republican administration has been using their power to benefit the rich and powerful while hurting the middle class?

By Chrome Toe on 09/17/2008 7:47 am

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Hi Kelly, I would NEVER think of speaking for Suzanne, but since she is apparently away, I will provide you some information that will help. Here is a comparison of economic policies by a joint operation of the Brookings Institution and the Urban Institute - both non-partisan think tanks http://www.taxpolicycenter.org/UploadedPDF/411749_updated_candidates.pdf The conclusion that can be drawn from analysis of these plans are that at the end of McCain’s term, the national debt will be increased by $5b, and Obama’s, $3.4b. Sept. 13 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said the U.S. can’t afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without similar reductions in the federal budget. Greenspan, a lifelong Republican and longtime friend of McCain, said on Bloomberg Television’s “Political Capital With Al Hunt” that “I’m not in favor of financing tax cuts with borrowed money.” You can also tell the people with whom you are debating that you got this information from a person who is not a Democrat, is a capitalist, and spent her life in finance.

By K O on 09/17/2008 2:00 pm

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Thanks Kitty - I just got this as I’m out of town and have had no internet. Great info. but you know… they will never BELIEVE that it comes from a non partisan person with knowledge. When they originally said “what policies” and I said “i’m not an economist and can’t answer specifically” they said “only democrat economist would know”… so there ya go. Not long ago I had a long training on “confirmative bias”. It was a training for child protective services workers trying to get them to understand that what people most often do is develop and opinion and then only pay attention to any information that confirms that opinion. in the case of children in the foster care system that type of confirmative bias is deadly. Literally. the case study they used in the training was a child who had died while living with their parents under state supervision. if you took the case apart you could see how the social worker had developed an opinion early on and only ingested information that confirmed that opinion. it led to the childs death. in the case of this election and most elections people are only willing to look at information which… wa la.. CONFIRMS their bias LOL. But… I’m going to use it and try anyway!

By Chrome Toe on 09/18/2008 10:23 pm

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Kitty and Diana, I guess my early post was before its time. Glad to the topic has a dedicated blog. Are there people already cooperating and seated that can make this happen? And, is there “clear” language already in the works?

By Hobo Questioning Almost Everything on 09/16/2008 11:41 am

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Hi Q A E, It’s a fluid situation where the possibility of a Fed “bridge loan” is being discussed, in addition to lending facilities from private and public companies.

By K O on 09/16/2008 12:18 pm

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Thank you for sharing. I will continue to watch this unfold. On another topic, I question the industry’s use of today’s 401k and kin. Is it possible retirement investments are being borrowed from by the financial institutions with the idea that the owners accept “temporary unseen” losses? And, the only true losses would be waged on those who are currently drawing from those accounts as retirement (risky business.) I ask this question because I’m trying to determine the next best place to invest, and if you have insight to other alternatives. I am hearing rumblings from loyal 401 investors, and they are tired of the yo-yo or “will it be there when I retire” syndrome.

By Hobo Questioning Almost Everything on 09/16/2008 7:52 pm

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Yes! If you can bear with me, Question, I am busy right now, but when I get some time, I will send you some resource links for you to study. I just can’t do it right now.

By Diana T on 09/16/2008 12:30 pm

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I just want to thank the women here who understand and can discuss the present economy, whether or not they agree. The two men in my life who I would turn to with questions are dead and I’ve become lazy. Neither was my husband, btw, and one lied to me about the trust fund he assured me I’d get, so I’m happy to be here.

By Flora Dora on 09/16/2008 1:15 pm

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Thank you in advance Diana. I look forward to getting them. If you get a chance to read my response to Kitty, I would address that same question to you.

By Hobo Questioning Almost Everything on 09/16/2008 7:55 pm

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http://www.cfr.org/publication/17252/global_implications_if_aig_fails.ht… Question, Maurice Greenburg is going to be on the whole hour on Charlie Rose. He was supposed to have Bob Woodward on tonight, but moved him off so he could talk about AIG. Of course, I will watch it to get a feel for what’s going on. I was gone from the house for 3 hrs., so I am just now finding out that the FED has loaned the money to AIG, which is a good thing because it’s so huge that to have it totally crash would be really bad. I think, Question, that big is not necessarily better unless it’s subject to very special regulations and transparency and oversight.

By Diana T on 09/16/2008 8:44 pm

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I missed it. I’ll check the website later to see if they post the video, or, I will trust your “in a nutshell” overview. Regarding the 401 item, I was having recall, (maybe it was a flashback), to the December 2003 NCSL Fall Forum topic of Mutual Fund Abuse - Sounding the Alarm on Wall Street, Again. I just feel these days that the average american retirement investments are like a cookie jar just waiting to be raided.

By Hobo Questioning Almost Everything on 09/16/2008 10:18 pm