Governor Paterson On AIG Bailout, Lehman Brothers Bankruptcy

by: robert.harding

Mon Sep 15, 2008 at 17:58:27 PM EDT

Governor David A. Paterson today announced a multi-billion dollar financing plan to stabilize American International Group (AIG), the world's largest insurance provider, at no cost to New York taxpayers. The plan calls for AIG to transfer some assets to provide necessary cash for short-term liquidity, a move that requires regulatory oversight approval from the New York Insurance Department. AIG will undertake a series of transactions that are expected to raise about $20 billion, solving the company's immediate cash liquidity problem. Additionally, Governor Paterson has sent Insurance Superintendent Eric Dinallo to work with the Federal Reserve on a plan to help AIG.

"Wall Street's continuing problems should serve as a stark reminder that this recession is far from over. New York State has taken the first step towards helping to stabilize AIG, which is otherwise a very healthy company," said Governor Paterson. "On a state level, we were able to reach a market-based solution that will stabilize AIG at no cost to New York taxpayers. Policyholders should also know that they are safe, and their insurance policies are still good. AIG'S insurance companies are financially strong, and the Insurance Department will continue to ensure that they remain strong."

These transactions will protect the company's policyholders, which is a pre-condition of the Insurance Department's approval. Additionally, the Insurance Department will continue to closely monitor AIG to ensure it has the assets to pay claims.

New York State Insurance Department Superintendent Eric Dinallo said: "Under Governor Paterson's direction, we are working closely with AIG to craft a transaction that will stabilize an important New York insurance company, while protecting policyholders. This continues our work with the bond insurers where the State proactively produced market-based commercial solutions. We will continue to implement the Governor's program of creative and pragmatic regulation that promotes growth while protecting policy holders and consumers."

AIG is the world's largest insurance company with $1 trillion in assets, and more than 100,000 employees. In New York State, AIG has 8,500 employees who earn an annual payroll of $897 million.

Earlier in the day, Governor Paterson had to address Lehman Brothers filing for bankruptcy - the largest bankruptcy filing in history:

"Since the day I took office, I have spoken consistently about the risks of further declines in the market. To address these issues, I convened an extraordinary special economic session and worked with the Legislature this August to enact an unprecedented midyear spending reduction of more $1 billion over two years.

"The bankruptcy of Lehman Brothers Holdings is deeply troubling news not only for Wall Street, but also potentially for our State budget. We are currently assessing the situation within the financial markets, and taxpayers should know we will take whatever actions are needed to protect the State's finances and the health of New York's economy. Furthermore, our debt portfolio and strong credit rating should remain unaffected.

"Clearly, however, we are entering uncharted waters. Of the five largest, independent investment banks, only two are left standing today: Goldman Sachs and Morgan Stanley. Bear Stearns and Lehman Brothers have both collapsed, and Merrill Lynch has been subsumed into Bank of America.

"These three firms - Bear Stearns, Lehman Brothers, and Merrill Lynch - had nearly 30,000 employees in New York, paid roughly 10 percent of Wall Street wages, and approximately 15 percent of all Wall Street bonuses.

"20 percent of State revenue is derived from Wall Street. While the full impact of these events may not be known for months or even years, the fact that financial services firms that were able to survive the Great Depression, world wars, and the September 11th attacks collapsed under the weight of the current financial crisis is cause for grave concern. While New York State has already made significant reductions to its revenue forecast by $2.3 billion for the current fiscal year, there are risks going forward.

"While the Division of Budget will release its full Mid-year Update to the State financial plan in October with revised revenue and spending forecasts that reflect recent events within the financial services world, we will continue to closely monitor the situation and update the public regularly as more information becomes available."

I will have an analysis on this later. This is not a good day for our economy though.  

Paterson-- Yo! Bro! Say It Ain't So! AIG Gets Sweet Deal From NYS?

by: robinia

Mon Sep 15, 2008 at 13:32:59 PM EDT

From Norris

1:15 p.m.
AIG shares have bounced from their lows on news that New York State wants to help. The governor says the state insurance department is going to let AIG take $20 billion from insurance subsidiaries and lend it to the parent.

AIG always was said to be a politically connected company, and this seems to confirm that. The announcement, you will note, did not come from the insurance regulator.

Governor David Patterson says this is "not a government bailout," and he will be right . . . if AIG can meet its obligations. If not, the insurance subsidiaries will have that much less cash to meet their obligations, and then a state insurance fund could be hit to pay claims.

But don't worry. Governor Patterson says AIG is "extraordinarily solvent." If he explained why a company that is not only solvent, but extraordinarily solvent, can't borrow money elsewhere, I did not see it in the wire accounts.

In any case, AIG is back to $6.90, almost double the low of $2.50 hit this morning.

UPDATE: If you would like to know a bit more about the insurance company you may have just bought (to go with your Fannie Mae, Freddie Mac, Bear, IndyMac series), check this out. Sure hope that turns out to be a positive equity stake in the "ownership society" and not involuntary servitutude for some picky Dubai slavedriver. Am concerned.

Paterson To Make Statement On AIG Shortly

by: phillip anderson

Mon Sep 15, 2008 at 12:16:02 PM EDT

They also note that Governor Paterson is expected to make a statement about AIG at "midday."

Wonder what that's all about.