Thursday, October 30, 2008

"in a move that could deepen the political backlash over its use of taxpayers’ money."

AIG just keeps amazing me. From the FT:

AIG has raised funds from a new Federal Reserve lending facility to repay part of a $123bn Fed loan that is keeping the stricken US insurer alive, in a move that could deepen the political backlash over its use of taxpayers’ money.

AIG said on Thursday that it had tapped a Fed lending window designed to kick-start the flagging market for commercial paper and used some of the proceeds to pay back part of the government loan.

The decision to use one government facility to repay another could raise eyebrows among Washington politicians, who have attacked AIG for paying for a corporate retreat and for spending money on lobbying following the federal bail-out.

So, there borrowing from one part of the government to pay off and avoid the punitive interest in the previous loan:

"Analysts said that AIG might have used the commercial paper facility to pay back the loan because the interest rates charged were lower. The government demanded a punitive rate of 8.5 per cent over the London Interbank Borrowing Rate on its $85bn two-year loan, while the Fed is charges interest of around 2-3 per cent for three-month commercial paper.

In a regulatory filing, AIG said that, under Fed rules, it can only raise a maximum of $21bn from the commercial paper window and adding the proceeds would be used for corporate purposes as well as repaying part of the loan.

The news came as Hank Greenberg, AIG’s former chief executive and a large shareholder, was Thursday night preparing to send a letter to Edward Liddy, AIG’s current chief, urging him to ask the government to guarantee all its credit default swap collateral. In Mr Greenberg’s view, the move would enable AIG to quickly repay the government loan."

Okay.

1) Paying off 8.5% loan with 2/3% loan

2) Get government to guarantee all their CDS's

I thought that we already had.


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